Original author: Weilin, PANews
The BZX Exchange of the Chicago Board Options Exchange (Cboe) recently submitted four applications for Solana ETFs. With the U.S. presidential election day over, Trump will take office, and SEC Chairman Gary Gensler announced he will resign in January next year, the regulatory environment for cryptocurrency ETFs is expected to undergo significant changes, creating new opportunities for the approval of Solana ETFs.
Analysts believe that the SEC will return from a 'law enforcement-based' to a 'disclosure-based' regulatory model. If the Solana ETF is approved, it will stimulate huge 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 hurdles of being classified as a security, its ETF application process is steadily advancing in the expectation of a new regulatory environment.
Four institutions are vying to apply for a Solana ETF, which was previously deemed 'almost impossible'.
On November 22, Cboe BZX Exchange documents showed that the exchange proposed to list and trade four types of Solana ETFs on its platform. These ETFs are initiated by Bitwise, VanEck, 21 Shares, and Canary Funds and classified as 'Commodity-Based Trust Shares', submitted under Rule 14.11(e)(4). If the SEC formally accepts them, 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 approvals:
• XRP ETF: Canary Capital, Bitwise, and 21 Shares have submitted applications.
• Solana ETF: Canary Capital, 21 Shares, 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 that at least one issuer has also attempted ETF applications for ADA (Cardano) or AVAX (Avalanche).
Currently, some industry insiders believe that the chances of the Solana ETF passing are ahead of other ETFs.
However, just three months ago, reports indicated that CBOE had removed the 19b-4 applications for two potential Solana ETFs from the 'Pending Rule Changes' page on its website. At that time, Bloomberg ETF analyst Eric Balchunas commented that after Cboe removed the 19b-4 applications for Solana ETFs from its site, the chances of Solana ETFs being approved were minimal. However, the new regulatory environment may bring significant changes.
Regulatory changes are expected: the SEC will return to a disclosure-based regulatory model.
After the U.S. election day, the elected president Trump and the most crypto-friendly Congress in history will take office. Meanwhile, SEC Chairman Gary Gensler, who has been criticized for 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 it is very likely that the Solana ETF will be approved by the end of next year. 'It seems that the SEC is communicating with issuers regarding this product, which is clearly a positive sign.'
Alexander Blume, CEO of Two Prime Digital Assets, agrees with this viewpoint, stating that if issuers are not confident of success, they would not waste time and resources pursuing it.
Matthew Sigel, head of digital asset research at VanEck, which was the first to apply for a 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. A return 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 cryptocurrency products beyond Bitcoin and Ethereum.
SEC Chairman Gary Gensler will step down in January 2025.
On January 20 next year, Gensler will step down from the SEC chair position, coinciding with Trump's inauguration day. Recently, these news have boosted the crypto market, with Bitcoin prices continuously reaching historical highs while approaching 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 funds, and other high-risk financial misconduct are priorities for the agency. Now, Gensler's resignation is expected to reverse the regulatory environment regarding cryptocurrencies.
Alexander Blume mentioned earlier stated: 'Through regulated traditional financial channels such as banks and exchanges, institutional and retail investors can access cryptocurrencies through ETFs, which will open up previously non-existent pools of capital. This is like replacing (large) fire hoses with (small) pool hoses, indicating potential market momentum enhancement, and speculative trading may also have a greater impact.'
Solana is experiencing strong growth momentum, but what potential application challenges does it face?
Buoyed by meme trends, Solana's growth momentum this year has been significant. Solana's native token SOL broke its 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 application face? Looking back at previous Ethereum ETF applications, in the approval statement for the Ethereum ETF, the SEC adopted an analysis framework called the 'Ark Analysis Test', which was provided by Ark Funds and adopted by the SEC. This framework listed several key reasons that ultimately led to the 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, especially recognized exchanges such as CME (Chicago Mercantile Exchange). Second, the price deviation between the futures ETF and the spot price cannot 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. Futures ETFs have been running for some time and have performed steadily, 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 Solana ETFs to market is to first launch Solana futures ETFs, paving the way for spot ETFs. He further stated that even if Solana futures ETFs are launched, they will need to trade for a period to establish a performance record, which could take a long time and ultimately require a significant amount of time to complete.
Although Bitcoin ETFs and Ethereum ETFs have been approved, they have a significant difference from Solana: Bitcoin and Ethereum both trade futures on regulated exchanges like the Chicago Mercantile Exchange (CME), where the SEC can monitor. However, Solana was listed as one of 19 unregistered securities when the SEC sued Binance and Coinbase Global Inc. in 2023, which also presents a legal obstacle to the approval of Solana ETFs.
Nevertheless, previously, Matthew Sigel, head of digital asset research at VanEck, pointed out that VanEck considers Solana (SOL) to be a commodity, similar to Bitcoin (BTC) and Ethereum (ETH). This view is based on an 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, a significant reduction from a year ago. The top 10 addresses now hold less than 9%. Solana has over 1,500 validating nodes distributed across 41 countries, operating over 300 data centers, with a Bitcoin similarity coefficient of 18, surpassing most networks it monitors. 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 decentralized characteristics more pronounced, resembling digital commodities like Bitcoin and Ethereum.
Sigel also mentioned a key legal case – the 2018 CFTC v. My Big Coin case. In this case, the defense argued that the MBC 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 the definition of a commodity under the Commodity Exchange Act (CEA) is very broad, encompassing all goods, items, and all services, rights, and interests associated with those goods, and that these goods may have futures contracts in the future.
Sigel believes that this precedent may apply to Solana, indicating that even if Solana does not have futures contracts, it can still be considered a commodity. This classification is crucial for the approval of Solana ETFs, as it provides legal grounds for Solana to be recognized as a commodity, allowing it to enter the approval process for commodity ETFs.
He stated that ETF approval does not necessarily require an active futures market. Despite the low trading volume in related futures markets, ETFs for shipping, energy, and uranium already exist. 'We believe that it can be approved even without CME futures contracts.' He added that exchanges can substitute with market surveillance sharing agreements.
If approved, the next question is how high the demand for a spot Solana ETF will be. Grayscale Investments currently operates the Grayscale Solana Trust, managing assets of approximately $70 million. Bloomberg analyst James Seyffart believes that since Solana's market capitalization is about 6% of Bitcoin's, the demand for this ETF will grow proportionately, with total demand expected to ultimately reach about $3 billion.
