Written by: Weilin, PANews
The BZX exchange of the Chicago Board Options Exchange (Cboe) recently submitted applications for four Solana ETFs. With the U.S. election day coming to an end and Trump set to take office, SEC Chairman Gary Gensler announced he will resign in January next year, which is expected to bring significant changes to the regulatory environment for cryptocurrency ETFs, creating new opportunities for the approval of the Solana ETF.
Analysts believe that the SEC will shift from a 'law enforcement-based' approach back to a 'disclosure-based' regulatory model. If the Solana ETF is approved, it will stimulate enormous demand in the crypto ETF market. As the fourth largest cryptocurrency by market capitalization, despite lacking the support of a mature futures market and facing potential obstacles of being classified as a security, its ETF application process is steadily progressing in anticipation of the new regulatory environment.
Four institutions are competing to apply for the Solana ETF, which was once 'almost impossible.'
On November 22, filings from the Cboe BZX exchange indicated that the exchange proposed to list and trade four types of Solana ETFs on its platform. These ETFs are initiated by Bitwise, VanEck, 21Shares, and Canary Funds, classified as 'commodity-based trust shares,' submitted under rule 14.11(e)(4). If the SEC formally accepts, the final approval deadline is expected to be in early August 2025.
In addition to Bitcoin and Ethereum, the following cryptocurrencies are also awaiting ETF approval:
XRP ETF: Canary Capital, Bitwise, and 21Shares have submitted applications.
Solana ETF: Canary Capital, 21Shares, Bitwise, and VanEck are seeking approval.
Litecoin ETF: Canary Capital has submitted an application.
HBAR ETF: Canary Capital has submitted an application.
Nate Geraci, president of ETF Store, stated on November 21 that there are reports of at least one issuer also attempting to apply for an ETF for ADA (Cardano) or AVAX (Avalanche).
Currently, some industry insiders believe that the chances of the Solana ETF being approved rank ahead of other ETFs.
However, just three months ago, there were reports that CBOE had removed two potential Solana ETF's 19b-4 applications from its website's 'Pending Rule Changes' page. At that time, Bloomberg ETF analyst Eric Balchunas commented that after Cboe removed the 19b-4 applications for the Solana ETF from its website, the chances of approval were almost nonexistent. But currently, the new regulatory environment may bring significant changes.
Expected regulatory changes: The SEC will return to a disclosure-based regulatory model.
After the U.S. election day, President-elect Trump and the most crypto-supportive Congress in history are about to take office. And SEC Chairman Gary Gensler, who has been critical of the crypto industry, will resign on January 20, 2025, bringing more optimism to crypto supporters.
Nate Geraci, president of ETF Store, stated that he believes the Solana ETF is very likely to be approved before the end of next year. 'It seems the SEC is communicating with the issuers about this product, which is clearly a positive signal.'
Alexander Blume, CEO of Two Prime Digital Assets, agrees with this perspective, stating that if issuers were not very confident of success, they would not waste time and resources on it.
Matthew Sigel, head of digital asset research at VanEck, the earliest applicant for the Solana ETF, stated, 'It was the SEC under Gary Gensler's leadership that broke the long-standing rule-based traditional process and regulated through enforcement. Returning to a disclosure-based conventional system will bring more possibilities for innovation. I believe the chances of launching a Solana ETF by the end of next year are very high.'
However, contrary to VanEck's optimistic view, Robert Mitchnik, head of BlackRock's digital assets division, which has the largest Bitcoin ETF, stated that the company is not very interested in other crypto products beyond Bitcoin and Ethereum.
SEC Chairman Gary Gensler will resign in January 2025.
On January 20 next year, Gensler will step down from the SEC chair position, which is also the day of Trump's inauguration. Recently, these messages have continuously boosted the crypto market, and Bitcoin prices are consistently setting historical highs in the process of challenging the $100,000 mark.
Data shows that the SEC set a historical record in the 2024 fiscal year, initiating 583 enforcement actions and obtaining $8.2 billion in financial compensation orders, the highest amount in SEC history. Compared to 2023, this represents a 14% increase in enforcement actions. Cases involving cryptocurrencies, private equity funds, and other high-risk financial misconduct are priorities for the agency. Now, Gensler's resignation is expected to reverse the regulatory environment for cryptocurrencies.
Alexander Blume mentioned above stated, 'Through regulated traditional financial channels such as banks and exchanges, institutional and retail investors can access cryptocurrencies through ETFs, which will open up funding pools that previously did not exist. This is like replacing a (big) fire hose with a (small) swimming pool hose, which means potential market momentum will be enhanced, and speculative trading may also have a greater impact.'
Solana has strong growth momentum, but what potential application challenges does it face?
Boosted by meme trends, Solana's growth momentum has been significant this year. The native token of Solana, SOL, broke through the previous all-time high of $259.96 set at the end of 2021, reaching $263.83 on November 23, with a market capitalization of $121.1 billion, making it the fourth largest cryptocurrency.
What obstacles might the Solana ETF encounter? Looking back at previous Ethereum ETF applications, the SEC adopted an analytical framework called the 'Ark Analysis Test,' provided by Ark Funds and adopted by the SEC. This framework listed several key reasons that led to the ultimate approval of the Ethereum ETF: First, the existence of futures trading: The approval of a spot ETF must be based on a mature futures trading market, particularly recognized exchanges such as CME (Chicago Mercantile Exchange). Secondly, the deviation between the price of the futures ETF and the spot price should not be too large. This proves that the market will not be manipulated by the spot ETF. Additionally, a certain level of market maturity is required. The futures ETF has been operational for some time and has shown stable performance, further supporting the maturity and stability of the spot market.
Rob Marrocco, vice president and global head of ETF listings at CBOE, pointed out that the only viable way to bring the Solana ETF to market is to first launch a Solana futures ETF and then pave the way for a spot ETF. He further stated that even if the Solana futures ETF is launched, it would need to trade for a period to establish a performance record, and this process could take a long time, ultimately requiring a significant amount of time to complete.
Although Bitcoin ETFs and Ethereum ETFs have already been approved, they have a significant difference from Solana: Bitcoin and Ethereum are traded in futures on the regulated Chicago Mercantile Exchange (CME), where the SEC can monitor them. In contrast, Solana was listed as one of the 19 unregistered securities when the SEC sued Binance and Coinbase Global Inc. in 2023, which also presents legal obstacles for the Solana ETF approval.
Nevertheless, Matthew Sigel, head of digital asset research at VanEck, noted previously that VanEck considers Solana (SOL) a commodity, similar to Bitcoin (BTC) and Ethereum (ETH). This view is based on the evolving legal perspective, as courts and regulators have begun to recognize that certain crypto assets may behave as securities in the primary market but more like commodities in the secondary market.
Sigel further mentioned that Solana has made significant progress in decentralization over the past year; currently, the top 100 holders control about 27% of the supply, significantly down from a year ago. The top 10 addresses now hold less than 9% of the supply. Solana has over 1,500 validator nodes distributed across 41 countries, operating more than 300 data centers, with a concentration ratio of 18, surpassing most networks they monitor. The upcoming Firedancer client will further enhance decentralization, ensuring that no single entity can dominate the blockchain. He believes that these advancements make Solana's decentralization features more prominent, making it more like digital commodities such as Bitcoin and Ethereum.
Sigel also mentioned a key legal precedent—the 2018 CFTC v. My Big Coin case. In this case, the defense argued that the token did not qualify as a commodity because there were no futures contracts associated with it. However, the U.S. District Court disagreed, stating that under the Commodity Exchange Act (CEA), the definition of a commodity is very broad, encompassing all goods, items, and all services, rights, and interests related to these goods, and that these goods may have futures contracts in the future.
Sigel believes that this precedent may apply to Solana, indicating that even without futures contracts, Solana can still be considered a commodity. This classification is crucial for the approval of the Solana ETF because it provides legal grounds for Solana to be recognized as a commodity, allowing it to enter the approval process for commodity ETFs.
Thus, he stated that the approval of the ETF does not necessarily require an active futures market. Despite low trading volumes in related futures markets, ETFs for shipping, energy, and uranium already exist. 'We believe that even without CME futures contracts, it can still be approved.' He stated that exchanges can replace it through market monitoring sharing agreements.
If approved, the next question is how much demand there will be for the spot Solana ETF. Grayscale Investments already operates the Grayscale Solana Trust, currently managing approximately $70 million in assets. Bloomberg analyst James Seyffart believes that since Solana's market cap is about 6% of Bitcoin's, the demand for this ETF will grow proportionally, with total demand expected to reach about $3 billion.
