Solana ETF Approval Prospects: From "Almost Hopeless" to "Expected Before the End of 2025", What Are the Current Challenges?

Author: Weilin, PANews

The BZX Exchange of the Chicago Board of Trade (Cboe) recently submitted applications for four Solana ETFs. With the end of the US election day, Trump will take office, and the chairman of the Securities and Exchange Commission (SEC), Gary Gensler, has announced that he will resign in January next year, the regulatory environment for cryptocurrency ETFs is expected to usher in major changes, creating new opportunities for the approval of the Solana ETF.

Analysts believe that the SEC will return from a "law enforcement-based" to an "information disclosure-based" regulatory model. If the Solana ETF is approved, it will stimulate huge demand in the crypto ETF market. As the fourth largest cryptocurrency by market value, Solana, despite the lack of support from a mature futures market and the potential obstacle of being judged as a security, is steadily advancing its ETF application process in anticipation of the new regulatory environment.

Four institutions are competing to apply for Solana ETF, which was once "almost impossible"

On November 22, Cboe BZX Exchange documents showed that the exchange proposed to list and trade four Solana ETFs on its platform. These ETFs were initiated by Bitwise, VanEck, 21Shares and Canary Funds, and were classified as "commodity-based trust fund shares" and submitted in accordance with Rule 14.11(e)(4). If the SEC formally accepts it, the final approval deadline is expected to be early August 2025.

In addition to Bitcoin and Ethereum, the following cryptocurrencies are also awaiting ETF approval:

• XRP ETF: Canary Capital, Bitwise and 21Shares have submitted applications.

• Solana ETF: Canary Capital, 21Shares, Bitwise and VanEck are seeking approval.

• Litecoin ETF: Canary Capital has submitted an application.

• HBAR ETF: Canary Capital has submitted an application.

Nate Geraci, president of ETF Store, said on November 21 that there was news that at least one issuer had also attempted an ETF application for ADA (Cardano) or AVAX (Avalanche).

At present, some industry insiders believe that the Solana ETF has a higher chance of being approved than other ETFs.

However, just three months ago, it was publicly reported that CBOE had removed the 19b-4 applications for two potential Solana ETFs from the "Pending Rules Change" page on its website. At the time, Bloomberg ETF analyst Eric Balchunas commented that after Cboe removed the Solana ETF's 19b-4 application from its website, the Solana ETF had little chance of being approved. But now, the new regulatory environment may bring significant changes.

Expected regulatory changes: SEC will return to a regulatory model based on information disclosure

After the US election day, President-elect Trump and the most crypto-friendly Congress in history will take office . SEC Chairman Gary Gensler, who has criticized the crypto industry, will resign on January 20, 2025, which has brought more optimism to crypto supporters.

Nate Geraci, president of ETF Store, said he believes the Solana ETF is very likely to be approved by the end of next year. “It looks like the SEC is communicating with the issuer about this product, which is obviously a positive sign.”

Alexander Blume, CEO of Two Prime Digital Assets, agreed with this view, saying that if publishers are not very sure that they will succeed, they will not waste time and money doing it.

Matthew Sigel, head of digital asset research at VanEck, which first applied for the Solana ETF, said, “It was the SEC under Gary Gensler that broke the long-standing rule-oriented traditional process and regulated through law enforcement. Returning to the conventional system based on information disclosure will bring more possibilities for innovation. I think the possibility of launching the Solana ETF by the end of next year is very high.”

However, in contrast to VanEck's optimism, Robert Mitchnik, head of BlackRock's digital assets division, which currently has the largest Bitcoin ETF, said the company has little interest in crypto products other than Bitcoin and Ethereum.

SEC Chairman Gary Gensler to step down in January 2025

Gensler will step down as SEC chairman on January 20, the same day Trump is inaugurated. Recently, these news have boosted the crypto market, with Bitcoin prices continuing to hit record highs as they hit the $100,000 mark.

Data shows that the SEC set a record in fiscal year 2024, filing 583 enforcement actions and obtaining a financial compensation order of $8.2 billion, the highest amount in SEC history. This represents a 14% increase in enforcement actions compared to 2023. Among them, cases involving cryptocurrencies, private equity funds, and other high-risk financial misconduct are the agency's priorities. Now, Gensler's resignation is expected to reverse the crypto regulatory environment.

Alexander Blume, mentioned above, said: “Through regulated traditional financial channels such as banks and exchanges, institutional and retail investors will be able to access cryptocurrencies through ETFs, which will open up pools of funds that did not exist before. This is like replacing a (small) swimming pool hose with a (big) fire hose, which means that the potential market momentum is enhanced and speculative trading may also have a greater impact.”

Solana has strong growth momentum, but what potential application challenges does it face?

Boosted by the meme market, Solana has seen significant growth this year. Solana's native token SOL broke through the previous all-time high of $259.96 set at the end of 2021 on November 23, reaching $263.83, with a market value of $121.1 billion, making it the fourth largest cryptocurrency.

What application obstacles will Solana ETF encounter? Looking back at the previous Ethereum ETF application, in the approval statement of the Ethereum ETF, the SEC adopted an analysis framework called "Ark Analysis Test", which was provided by the Ark Fund and adopted by the SEC. The framework lists several key reasons for the final approval of the Ethereum ETF: First, the existence of futures trading: the approval of spot ETFs must be based on a mature futures trading market, especially an officially recognized exchange such as CME (Chicago Mercantile Exchange). Secondly, the deviation between the price of the futures ETF and the spot price cannot be too large. This proves that the market will not be manipulated by the spot ETF. In addition, a certain degree of market maturity is required. Futures ETFs have been running for some time and have performed stably, which further supports the maturity and stability of the spot market.

Rob Marrocco, Vice President and Head of Global ETF Listings at CBOE, pointed out that the only feasible way to bring Solana ETFs to market is to launch Solana futures ETFs first and then pave the way for spot ETFs. He further stated that even if Solana futures ETFs are launched, they will need to go through a period of trading to establish a performance record, which may be a long process and may ultimately take a lot of time to complete.

Although Bitcoin ETF and Ethereum ETF have been approved, they have a big difference from Solana: Bitcoin and Ethereum are both traded on the regulated Chicago Mercantile Exchange (CME) futures, which the SEC can monitor. Solana was listed as one of the 19 unregistered securities when the SEC sued Binance and Coinbase Global Inc. in 2023, which also brought legal obstacles to the approval of SolanaETF.

Nevertheless, Matthew Sigel, head of digital asset research at VanEck, previously pointed out that VanEck believes Solana (SOL) is a commodity, similar to Bitcoin (BTC) and Ethereum (ETH). This view is based on an evolving legal perspective, where courts and regulators have begun to recognize that certain crypto assets may behave as securities in the primary market, but are more like commodities in the secondary market.

Sigel further mentioned that Solana has made significant progress in decentralization over the past year; the top 100 holders currently control about 27% of the supply, a significant decrease from a year ago. The top 10 addresses now hold less than 9%. Solana has more than 1,500 verification nodes in 41 countries, operates more than 300 data centers, and has a Satoshi coefficient of 18, surpassing most of the networks it monitors. The upcoming Firedancer client will further enhance decentralization and ensure that no single entity can dominate the blockchain. He believes that these advances make Solana's decentralized features more prominent, more like digital commodities such as Bitcoin and Ethereum.

Sigel also mentioned a key legal precedent - the 2018 U.S. Commodity Futures Trading Commission (CFTC) v. My Big Coin case. In this case, MBC's defense argued that the token was not a commodity because there was no futures contract associated with it. However, the U.S. District Court disagreed with this view, arguing that under the U.S. Commodity Exchange Act (CEA), the definition of commodities is very broad, including all commodities, articles, and all services, rights and interests related to these commodities, and these commodities may have futures contracts in the future.

Sigel believes that this precedent may apply to Solana, indicating that even if Solana does not have futures contracts, it can still be considered a commodity. This classification is crucial to the approval of the Solana ETF because it provides Solana with a legal basis to be recognized as a commodity, allowing Solana to enter the approval process for commodity ETFs.

As a result, he said that ETF approval does not necessarily require an active futures market. Although the relevant futures markets have low trading volumes, ETFs for shipping, energy and uranium already exist. "We think it can be approved even without the CME futures contract." He said that market surveillance sharing agreements between exchanges could be an alternative.

If approved, the next question is how much demand there will be for the spot Solana ETF. Grayscale Investments already operates the Grayscale Solana Trust, which currently manages about $70 million in assets. Bloomberg analyst James Seyffart believes that since Solana's market capitalization is about 6% of Bitcoin, demand for the ETF will grow proportionally, and it is expected that the total demand will eventually reach about $3 billion.