Spot Bitcoin and Ethereum exchange-traded funds have been a phenomenal success — and sparked speculation about which cryptocurrency is next to be packaged up and sold as an ETF.
To some, Solana, the fifth biggest cryptocurrency in the world, is the strongest contender for the next ETF product. VanEck and 21Shares have applied for permission to launch such funds.
But a Solana ETF is “a non-starter,” Sui Chung, CEO of Kraken-owned index provider CF Benchmarks, told DL News.
CF Benchmarks supplies its Bitcoin Reference Rate to six of the 11 approved US Bitcoin ETF issuers, and all three of those approved in Hong Kong.
“Solana ETFs are not going to happen — or at least, it won’t happen on the same basis as how Bitcoin and Ether happened,” Chung said.
That’s because, there are no major, regulated Solana futures markets, Chung said.
The Securities and Exchange Commission, which regulates ETFs, says no spot crypto ETFs can be held on US exchanges until there’s a highly correlated, regulated futures market for the corresponding asset.
The CME, the world’s largest derivatives market, has listed Bitcoin and Ether futures since 2017 and 2021 respectively.
“And there’s been no disorder in those contracts,” Chung said.
“When you have futures that trade without market disorder, there’s no reason to not have spot ETFs.”
The case for SOL ETFs
Solana proponents like Joe McCann, CEO of crypto investment firm Asymmetric Finance, have told DL News that SOL must be next for the ETF treatment given its stature in the market.
SOL is up more than 45% since the start of the year — performing better than either Bitcoin or Ether — partly thanks to retail traders speculating on memecoins and low transaction fees.
Investment giant VanEck became the first institution to file to offer a SOL ETF in late June.
But other sceptics echo Chung’s pessimism.
Katalin Tischhauser, head of investment research at Sygnum Bank, told DL News there is little demand for Solana ETFs among traditional investors.
To be sure, the thawing on Capitol Hill towards the crypto industry may pave the way for a Solana ETF. After all, it was one of the reasons Ethereum ETFs were launched, according to Bloomberg Intelligence analyst Eric Balchunas.
That, however, will depend on the outcome of the US election. In July, Balchunas noted that if the Democrats win then Solana ETF applications are “likely dead on arrival. If Trump wins, anything [is] possible.”
What’s next?
So what’s next, if not a Solana ETF? Chung said that, rather, consumers want “fire and forget” products that give them market exposure to crypto and can be held for years.
“That’s the most interesting trend happening on the ETF front,” he said.
He pointed to Franklin Templeton’s recent proposal to launch a new crypto-focused ETF as one example of this trend.
The asset manager, one of the first to offer crypto-focused products to investors, proposed a fund with the ticker EZPZ that would give investors exposure to CF Benchmarks’ Institutional Digital Asset Index.
The ETF would initially include Bitcoin and Ethereum, the firm said in its SEC filing.
Reach out to the author at joanna@dlnews.com.
