(Bloomberg) — VanEck’s decision to file for an exchange-traded fund holding the Solana cryptocurrency may prove to be a “long shot” that analysts see worth taking with digital-asset advocates anticipating a shift in sentiment when it comes to regulation.
While similar ETFs have been approved for Bitcoin, and are expected to be green lighted for Ether shortly, they differ from Solana in a big way: Both have futures traded on the regulated CME exchange that the US Securities and Exchange Commission can monitor. Solana is also among the 19 tokens designated as unregistered securities by the agency when it sued Binance and Coinbase Global Inc. last year.
“The problem is, there’s just nothing that’s lined up for this to be approved,” said James Seyffart, an analyst for Bloomberg Intelligence. “This is largely a long-shot filing.”
Solana first garnered widespread attention when it was championed by Sam Bankman-Fried. After Bankman-Fried’s crypto exchange FTX and affiliated Alameda Research fund imploded in 2022, Solana’s very survival was in question. But it’s since staged a comeback, becoming a favorite of memecoin issuers because of the lower fees changed than by rival blockchain networks such as Ethereum.
At around $67 billion, Solana is the fifth-biggest cryptocurrency by estimated market value. Bitcoin still accounts for more than 50% of the entire crypto market, while Ether is the second largest token. Tether’s USDT stablecoin is the third largest and Binance’s BNB exchange token is fourth, according to data compiled by CoinMarketCap.
Solana’s SOL token rallied as much as 11% after the exchange-traded-fund issuer submitted paperwork to the SEC on Thursday. That was the biggest intraday gain in more than a month. SOL was down about 5% to $142 on Friday.
Maybe most importantly, crypto has become a political issue in the upcoming presidential election, where President Joe Biden faces former President Donald Trump. If Trump is elected, the head of the SEC could be replaced, and a market-structure bill could be pushed through Congress that could make a spot Solana ETF possible, Seyffart said.
For its part, VanEck said an active futures market isn’t necessary for an ETF to be approved. ETFs in shipping, energy and uranium already exist, even though related futures market volume is immaterial, according to Matthew Sigel, head of digital asset research at VanEck. And Solana is decentralized, a major factor in the approval, he said.
“We think it can get done without a CME futures contract,” Sigel said in an interview. Market surveillance-sharing agreements with centralized exchanges could be used instead, he said.
VanEck submitted an S-1 form, and has yet to file a 19b-4 — a form that asks for a proposed rule change — to start the clock on a process that could potentially result in an approval as soon as next year. 21Shares AG followed VanEck with it’s own filing on Friday.
“It’s reasonable to expect other ETF issuers to follow after the ETH ETF officially launches,” said Cosmo Jiang, a portfolio manager at Pantera Capital, which has been buying Solana tokens from the bankrupt FTX estate. “VanEck may have jumped the gun a little bit, but clearly isn’t the only one interested. The BTC ETF has been such an incredible success that it will drive issuers to want to launch other spot digital asset ETPs.”
If the approval is granted, the next question is just how much demand there would be for a spot Solana ETF. Grayscale Investments already runs a Grayscale Solana Trust, with about $70 million under management. Seyffart figures that since Solana is about 6% of Bitcoin’s market cap, demand for the ETF would be proportionate, and reach around $3 billion over time.
“There’s no reason not to push the envelope here and start the conversation with the SEC,” Seyffart said.
(Adds in the 10th paragraph that 21Shares filed Friday for a Solana ETF.)
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