Solana ETF May Be Next, But It Will Take Years Says Bloomberg Analyst
The passing of spot Bitcoin exchange-traded funds (ETFs), along with the approval of spot Ethereum ETFs, have cleared the way for altcoin ETFs in the United States.
The recent success of spot Bitcoin ETFs also demonstrates the advancement of digital asset exchange-traded funds. For example, spot Bitcoin ETFs in the U.S. brought in $1.8 billion in inflows last week.
Industry experts are now predicting that an altcoin ETF may be approved next in the U.S. While this may be the case, it could take years before such an occurrence happens.
Solana ETF May Be Next, But Not For A While
Bloomberg Research ETF Analyst James Seyffart told Cryptonews that there is a long way to go before another digital asset gets an ETF in the U.S.
Seyffart further mentioned that he believes Solana (SOL) makes the most sense as the next possible ETF, yet he noted that the SEC is actively calling SOL a security.
“We’ve seen the SEC pivot, but it would likely be years before we see an altcoin ETF,” Seyffart said. “Even if an issuer filed for an ETF tomorrow, it wouldn’t be up for a decision from the SEC until March 2025.”
Altcoins Do Not Meet ETF Requirements
Seyffart added that he believes that an altcoin ETF will have almost “no shot of approval” in the next year due to the requirements needed for an ETF to be considered in the U.S.
“You need two things for an ETF. First, clarity around whether an asset is a commodity or security,” Seyffart said. “Second, a regulated market that can be surveilled.”
Seyffart pointed out that the Chicago Mercantile Exchange (CME) futures market is federally regulated by the Commodity Futures Trading Commission (CFTC). In the U.S., the CME controls both Bitcoin (BTC) and Ethereum (ETH).
“There currently isn’t a federally regulated or surveilled market that would satisfy the SEC requirements on any other digital assets at this time,” he said. “This can change if an admin is open and constructive with the industry, but it is still likely to take years.”
Michael Repetny, a core contributor at Marinade – a liquid staking protocol on Solana – added that before a spot ETF for Solana is approved, there must be a future ETF on the CME.
“This would indicate progressive steps toward full acceptance,” Repetny remarked.
Although a futures-based Solana ETF isn’t currently available to trade on any U.S. market, there are ETF-like products investors can buy.
For example, the Grayscale Solana Trust (GSOL) is a closed end fund. There is also VanEck Solana, which is an exchange-traded note (ETN).
Will The U.S. Election Impact an Altcoin ETF?
While it may take years before an altcoin ETF is approved in the U.S., industry experts believe that the 2024 Presidential Election could expedite the process.
“The upcoming election could definitely have an impact on the chances for another crypto ETF, but there’s no way to know for certain,” Seyffart said. “Theoretically, a pro-crypto administration would work faster on creating a framework for other digital assets to become ETFs.”
Interestingly, a pro-crypto administration may very well be seen in the U.S. in the coming years. Presidential candidate Donald Trump has recently expressed his support for Bitcoin and crypto mining in the region. Robert F. Kennedy Jr. (RFK Jr.) is also a supporter of Bitcoin and crypto.
Presidential candidate RFK Jr. @RobertKennedyJr says the approval of a spot Ethereum ETF was likely a political decision & that this is good for the US government overall. 🙌
Do you think we will see other crypt ETFs next? 🤔Taken at Consensus 2024 @consensus2025… pic.twitter.com/GflAkH8o8u
— Rachel Wolfson (@Rachelwolf00) June 6, 2024
Although this may accelerate the process, Repetny pointed out that an altcoin ETF will still likely take several months to a few years.
“The approval of a staked ETH ETF will likely precede any altcoin ETF approvals, setting a valuable precedent,” he added.
Chris Hermida, Co-Founder and CEO of permissionless oracle network Switchboard, told Cryptonews that the ETH ETF scenario could repeat.
“Political dynamics shifted unexpectedly after pro-crypto comments from Trump, resulting in bipartisan support for the financial product,” Hermida said. “Both parties are increasingly acknowledging the need for fair crypto regulation, which is advantageous for the industry.”
Indeed, it’s been noted by industry experts like Seyffart that the approval of an ETH ETF was politically motivated.
Low Liquidity Will Create Challenges for Altcoin ETFs
Regulatory concerns and politics aside, there are still a number of other challenges regarding altcoin ETFs.
For example, Repetny pointed out that low liquidity is a major factor that regulators will consider when evaluating the approval of an altcoin ETF. According to Repetny, liquidity ensures that the ETF can handle large trades without significant price impact, which is crucial for maintaining market stability.
“For altcoins, demonstrating sufficient liquidity will be essential to gaining regulatory approval, as it directly impacts the fund’s ability to operate efficiently and meet investors’ needs,” he said.
Hermida added that the low liquidity of altcoins greatly increases the risks of market manipulation and price volatility. In turn, he believes that this makes ETF approval for fringe altcoins, like memes coins, unlikely, at least in the near term.
“Dogecoin, for instance, experienced extreme spikes whenever Elon Musk mentioned the token,” Hermida said. “While we’ve seen this ‘celebrity effect’ impact traditional stocks as well, the low liquidity and small pool of token holders when it comes to altcoins like Doge makes the market impact much more pronounced, which will likely concern regulators.”
Given this, altcoins must demonstrate to regulators immunity from market manipulation and extreme price volatility before an ETF does get approved.
“I think Solana’s liquidity and large user base make it the most likely candidate,” Hermida added.
Solana’s Centralization Dilemma
While many people may agree with Hermida, the underlying issue with Solana is centralization.
Hermida believes the network is actively addressing these issues, however.
“Efforts to increase the number of validators and improve network resilience highlight Solana’s dedication to decentralization,” he said. “These proactive steps, along with its impressive technological capabilities, strengthen Solana’s position as a strong candidate for the next altcoin ETF approval.”
Even so, Seyffart is skeptical.
“The one I hear about most often is Solana, but I don’t think that is going to happen anytime soon,” Seyffart said. “You might need a new president, a new administration, or an act of congress.”
He added that the CME is currently unable to list Solana futures.
“They would be listing Solana potentially as commodity futures, but I don’t know if the SEC would allow that to happen,” he said. “Plus, many of the lawsuits we are seeing with Coinbase and Kraken have no problem citing Solana as a security.”
