The potential for another altcoin exchange-traded fund (ETF) in the U.S. could hinge on political shifts following the 2024 presidential election.
Despite the SEC approving spot Ether ETFs on May 23, SEC Chair Gary Gensler noted that “it will take time” for these ETFs to launch.
Speculation has already begun, with Solana emerging as a leading candidate for the next crypto ETF.
Ophelia Snyder, co-founder and president of 21.co, cautioned against high expectations for new altcoin ETFs.
“It’s unlikely that the approval of ETH will result in a large wave of approvals,” she told Cointelegraph.
Nonetheless, strong demand from institutional investors might drive ETF issuers to submit applications.
An April report by CoinShares revealed that hedge funds and wealth managers have significantly increased their altcoin holdings, particularly in Solana.
Snyder emphasized the substantial interest in 21.co’s Solana ETP on European exchanges, with nearly $990 million in assets under management.
The SEC remains hesitant to embrace additional cryptocurrencies for future ETFs. The approval of spot Ether ETFs was already challenging for the commission.
Approving an altcoin ETF could be even more difficult, but political factors, like the upcoming U.S. elections, might influence this.
Bloomberg ETF analyst Eric Balchunas explained that the SEC follows a specific timeline for approving ETFs, which could mean years before another altcoin ETF is approved.
He mentioned the crucial role of Chicago Mercantile Exchange (CME) data in assessing market integrity.
“The analysis used a 32-month sample, which required significant tenure of the asset on CME,” said CCData research lead Joshua de Vos.
Balchunas noted that the U.S. elections could be a significant variable.
Donald Trump’s pro-crypto stance contrasts with President Joe Biden’s more restrictive approach.
A Trump victory could lead to a more favorable environment for altcoin ETFs. Balchunas speculated, “If Trump wins, we could see other coins as ETFs.”
However, if Democrats maintain power, the prospects for an altcoin ETF remain slim, even with a new SEC chair.
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Beyond the elections, altcoin ETFs must meet requirements such as liquidity, decentralization, and resistance to price manipulation.
Market manipulation remains a concern, but Balchunas believes ETFs can handle some level of it.
Liquidity is another issue. Altcoin markets often lack the volume seen in Bitcoin or Ether.
Balchunas pointed out that ETFs can exist with lower liquidity, as seen with junk bond ETFs.
However, low liquidity can lead to premiums and discounts, which market makers can mitigate.
A basket of altcoins might be a solution, though investors prefer single asset trackers.
Snyder stated, “More demand for single asset trackers” exists than for altcoin baskets. Regulatory engagement would likely be required for such ETF wrappers.
Solana is seen as the leading contender for the next altcoin ETF due to its high market cap.
However, centralization issues and previous outages pose challenges.
If current regulators remain after the elections, a spot Solana ETF will face significant barriers.
Solana’s fundamentals must improve to meet U.S. regulatory standards and become a viable ETF option.
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