Solana
Solana Could Rise 8.9X in Value, Become Next Crypto ETF — GSR
Photo by Shubham Dhage on Unsplash.
Key points to remember
- Solana’s inclusion in a cash ETF could have a significant impact on its market value.
- Legislative changes in the United States are creating a more favorable environment for crypto ETFs.
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A recently published article report from GSR Markets, one of the largest crypto market makers, analyzed how Solana could gain 8.9x as it progresses to become the next crypto ETF after Bitcoin and Ethereum.
According to the report, Solana has cemented its position alongside Bitcoin and Ethereum as part of the “Big Three” of cryptocurrency. As such, speculation about its potential for a place in ETFs has been open and thriving. Current regulatory frameworks present some obstacles to new crypto ETFs, and developing political dynamics alongside these frameworks is likely to affect how such offerings could come to fruition.
Two key factors for the next crypto ETFs
GSR’s report highlights two key factors determining the next spot digital asset ETF: decentralization and potential demand. Solana performs well in both categories, scoring above average in decentralization metrics such as Nakamoto coefficient, staking requirements, and governance scores.
Decentralization is becoming increasingly important in regulatory considerations, with the FIT21 bill and SEC guidance suggesting that “sufficiently decentralized” assets could be viewed more favorably. This focus on decentralization could significantly influence which projects are eligible for ETF approval.
Measuring decentralization, however, is complex and multifaceted. Key indicators include the Nakamoto coefficient, which assesses the resilience of the network to collusion, and staking requirements, which indicate how accessible participation in the network is. This formulation serves as a quantitative method for determining the degree of decentralization of a network.
Balaji Srinivasan, Former Coinbase CTO and a16z CEO, Defines ‘Minimum’ Nakamoto coefficient as a “simple, quantitative measure of a system’s decentralization, driven by the well-known Gini coefficient and Lorenz curve.”
Governance ratings also play a role in assessing the transparency and inclusiveness of decision-making processes.
Market demand is equally crucial, as it directly impacts the profitability and viability of potential ETFs. Issuers must balance this demand with reputational risks and client interests. While cryptocurrency-native companies might offer a wider range of ETF offerings, larger traditional financial institutions are likely to be more selective, focusing on assets with strong decentralization credentials and high market interest.
“Putting all of this together, we can adjust our relative flow estimates under the different scenarios for Solana’s relative size versus Bitcoin’s 2.3x increase due to spot ETFs. This suggests that Solana could rise by 1.4x in the bearish flow scenario, 3.4x in the baseline scenario, and 8.9x in the blue sky scenario. GSR said in the report.
GSR’s analysis suggests that networks like Solana, which perform well on both decentralization and market demand, could be prime candidates for future ETFs.
Decentralization Key to Realizing the Potential of Solana ETFs
Decentralization is particularly crucial, as it can influence the classification of securities and the approval of ETFs. The analysis suggests that Ethereum, Solana, Avalanche, and Aptos have above-average decentralization scores, positioning them as potential candidates for future ETFs.
VanEck recently filed an application for first American Solana ETFcausing SOL to jump 10% in the first hour since its announcement, although it is now down 4.5% in the last 24 hours. 21shares would also have filed an application for a Solana ETFinitially named “21Shares Core Solana ETF”.
With these developments, the political climate is also changing, with Donald Trump’s recent support for the crypto industry prompting Democrats to soften their stance. GSR sees the sentenced The former president’s support for cryptocurrency legislation and his advocacy for pushing the United States to become an industry leader as a critical point to accept more ETFs outside of Bitcoin and Ethereum.
This bipartisan movement has already resulted in the passage of measures such as the rescission of the SEC’s SAB 121 and the Comprehensive Digital Asset Regulatory Framework (FIT21) in the House.
Although the current regulatory environment may not immediately allow for the creation of new digital spot asset ETFs, a change in administration and leadership at the SEC could significantly alter the landscape. The possibility of a digital asset market structure bill defining securities and commodities further opens up opportunities for expansion in the ETF space.
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