Solana
Analysts say Solana Spot ETFs still hold little promise
Uncertainty over whether SOL is a security and the lack of a futures market limit the chances of a Solana ETF approval in the near future.
Ethereum spot exchange-traded funds (ETFs) are together Due out July 23, all eyes are now on Solana.
Asset managers VanEck and 21Shares have already deposit for Solana spot ETFs, hoping it will be the next big player. Will their efforts be rewarded with quick approval? Some analysts are skeptical that Solana spot ETFs will get approval anytime soon.
Ryan Lee, chief analyst at Bitget Research, told The Defiant that the Securities and Exchange Commission’s (SEC) inconsistent application of the Howey Test and its “sufficient decentralization” criteria adds uncertainty to Solana’s qualification as a security.
“This makes the path to ETF approval difficult for Solana,” he said.
To get an ETF approved, certain conditions must be met, said Kashif Raza, CEO of Bitinning, a web3 education platform. These include healthy levels of liquidity, decentralization, resistance to price manipulation and regulatory classification.
Classification of potential titles
Raza said Solana’s classification as a security is the main obstacle to approval of a SOL ETF. In June 2023, the SEC deposit Lawsuits have been filed against cryptocurrency exchanges Binance.US and Coinbase, accusing them of trading in crypto asset securities, including Solana. The Solana Foundation has disputed this classification, saying that SOL is not a security.
“Bitcoin and Ethereum are global commodities,” Raza continued. “They are not tied to any particular company. There are no offices or shareholders. Most altcoins have pre-mining investors, venture capital backing, board meetings, and marketing departments – they basically operate like companies, which makes them securities.”
Solana is criticized for its centralization compared to Ethereum. One of the main reasons is the concentration of token ownership. About 50% of Solana’s SOL tokens are held by venture capitalists, developers, and Solana Labs, according to a 2021 Messari reportIn contrast, about 83% of Ethereum tokens were distributed through a public sale in 2018.
According to Solana Beach data, the Solana network understand about 1,525 nodes, less than Ethereum’s 3,730 full nodes node validators. The high hardware requirements to run a Solana validator node create a barrier to entry, limiting participation to those who can afford high-end equipment. This results in fewer nodes and greater centralization. On the other hand, Bitcoin has 8,583 nodes running.
Safety versus convenience
The classification of cryptocurrencies as securities or commodities impacts the regulatory framework for the digital asset industry. Securities, such as stocks, bonds, and derivatives, represent ownership positions or creditor relationships in companies or government agencies. The SEC oversees securities regulation in the United States, applying the Howey test to determine the security status of an investment.
If a cryptocurrency is considered a security, issuers and exchanges must comply with strict SEC regulations, including registering the asset and providing detailed disclosures to protect investors. If it is classified as a commodity, cryptocurrency falls under the CFTC’s jurisdiction and removes some of the regulatory burden.
Commodities, including commodities such as gold, wheat, or oil, are regulated by the Commodity Futures Trading Commission (CFTC). They are typically fungible, meaning they can be exchanged for other goods of the same type.
In July, CFTC Chairman urged Congress will grant the agency more authority over the cryptocurrency industry, particularly the cryptocurrency spot market.
No futures market
Nate Geraci, co-founder of the ETF Institute and chairman of the ETF Store, is also skeptical. He believes Solana won’t see ETF approval until it gets futures contracts.
“There will be no SOL ETF until CME-traded SOL futures exist or Congress enacts a legitimate regulatory framework for cryptocurrencies,” he said. tweeted in May. “The crypto ETF tap was turned off for a while after the approval of the spot eth ETFs… in my opinion.”
Bitcoin futures were the first approved in 2017, leading to trading on exchanges such as the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE), although the CBOE ceased trading in June 2019. Bitcoin futures quickly gained traction, with the CME Bitcoin futures reach $8.69 billion in open interest (OI) by July, according to data from The Block.
Ethereum futures have followed a similar trajectory, receiving approval from the CME in February 2021. While Ethereum futures typically see lower trading volumes than Bitcoin, they reached $1 billion in OI.
Solana still does not have a futures market in the United States, and by extension its ETFs face significant hurdles to approval.
However, Eric Balchunas, senior ETF analyst at Bloomberg, said a SOL ETF is on the horizon.
“Keep in mind that after launch there will be flows, then additional ETH products I’m sure, then Solana, and then… it will probably never end,” he said. tweeted“The dam has burst.”
Meanwhile, institutional investors are expanding their exposure to altcoins, including Solana. According to James Butterfill, head of research at CoinShares, almost 15% of surveyed investors invested in Solana in April.
The impact of elections
The upcoming US elections in November could play a pivotal role in the future of crypto ETFs.
Lee pointed out that crypto-friendly presidential candidate Donald Trump and his vice president JD Vance have publicly supported cryptocurrencies.
“If Trump wins the next election, we could potentially see a wave of new coins approved as ETFs,” he said.
Raza said Trump could even appoint a new SEC commissioner who is more friendly to crypto ETFs.
“However, if Democrats remain in power, it is unlikely that we will see an altcoin ETF anytime soon,” he noted. “Even if Biden replaces Gensler with another Democrat as SEC chair, the regulatory stance may still not be favorable for altcoin ETFs.”
That sentiment was echoed by Bloomberg Intelligence ETF expert James Seyffart, who told X that the Van Eck fund “only has a chance of launching in 2025 if we have a new administration in the White House and the SEC. Even then, it’s not guaranteed.”
Prediction market participants agree the odds are low. According to crypto prediction platform PolymarketSolana has only an 11% chance of seeing its spot ETF approved in 2024.