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First Bitcoin (BTC), now Ethereum (ETH). The US Securities and Exchange Commission (SEC) has approved two spot crypto exchange-traded funds (ETF) in 2024.
The crypto community is now expecting Solana (SOL) to be next in line to be awarded the coveted ETF wrapper by the US market regulator.
Will there be a spot Solana ETF anytime soon? Let’s analyze the topic and compare it with how ETH received its spot ETF approval in May 2024.
Key Takeaways
- Crypto has become a pressing political topic ahead of the November 2024 US presidential election.
- SEC examined a 31-month sample period to study the price correlation between ETH futures and spot ETH.
- SOL futures contracts do not exist on CME at the time of writing.
- SEC repeatedly called SOL a security on three separate occasions in 2023.
- Sergei Chmel of SeQuant Capital said spot SOL ETF talk is premature and added that the SOL market cap was too small.
Crypto’s Newfound Political Relevance Helps Spot Crypto ETFs
On May 23, 2024, the SEC approved eight spot ETH ETF applications, marking a spectacular turn of events for the crypto industry. Barely a week before the approvals, it had seemed highly unlikely that the SEC would greenlight spot ETH ETFs in the US.
At the end of March 2024, Bloomberg senior ETF analyst Eric Balchunas said spot ETH ETFs had a “pessimistic 25%” to be approved due to a lack of enthusiasm from the SEC to engage in discussions with applicants.
By mid-May 2024, Balchunas revised the odds to 75%, saying the SEC could “be doing a 180.”
Update: @JSeyff and I are increasing our odds of spot Ether ETF approval to 75% (up from 25%), hearing chatter this afternoon that SEC could be doing a 180 on this (increasingly political issue), so now everyone scrambling (like us everyone else assumed they'd be denied). See… https://t.co/gcxgYHz3om
— Eric Balchunas (@EricBalchunas) May 20, 2024
Many, including Balchunas, suspected that the SEC’s change of heart may come from cryptocurrencies becoming a pressing political topic ahead of the US presidential election in November 2024.
Former US President Donald Trump has already pledged his support for the crypto industry as a part of his campaign strategy, forcing the ruling Democrats to think twice before denouncing cryptocurrencies.
The research firm IntoTheBlock said in a note:
“As the US presidential elections approach, the stance toward the cryptocurrency sector is beginning to change. Both political parties are attempting to attract voters by adopting policies favorable to the industry.”
The highlight of the crypto industry’s political win in May 2024 also included the approval of a crucial bill called Financial Innovation and Technology for the 21st Century Act (FIT21) by The US House of Representatives.
Now, investors are hoping that crypto’s newfound political relevance will allow the creation of more spot crypto ETFs in 2024. Many expect Solana to be next in line. Given the sudden reversal of fortunes with the Ethereum ETF approval, many believe that spot Solana ETFs could actually happen.
Non-existent Solana Futures on CME May Hinder Solana ETFs
The US SEC prioritizes investor protection above everything else.
When the agency approved the spot ETH ETF applications, the SEC said that it found the proposals consistent with the Securities Exchange Act, which is designed to “prevent fraudulent and manipulative acts and practices.”
The SEC explained that it came to such a conclusion by examining the correlation between the ETH futures market on the Chicago Mercantile Exchange (CME) and spot prices on Coinbase and Kraken.
The SEC found that ETH futures prices and spot ETH prices were closely correlated.
The study allowed the SEC to conclude that fraud or manipulation in the spot ETH market would similarly impact ETH futures prices listed on CME.
This close correlation would allow regulators to detect fraudulent and manipulative acts and practices due to CME’s market surveillance system. The SEC said:
“And because the CME’s surveillance can assist in detecting those impacts on CME ether futures prices, the Exchanges comprehensive surveillance-sharing agreement with the CME can be reasonably expected to assist in surveilling for fraudulent and manipulative acts and practices in the specific context of the Proposals.”
Now, we come to how this impacts Solana spot ETFs.
Solana does not have futures contracts listed on CME.
At the time of writing, CME listed futures and options contracts related to Bitcoin and Ether.
Even if Solana futures contracts were to be listed on CME today, it would take months (even years) to record market data deep enough to analyze.
For context, the SEC used a 31-month sample period between October 2021 and March 2024 to examine the correlation between Ether futures prices and spot ETH prices.
Nevertheless, the listing of Solana futures contracts on CME will be a key Solana ETF news to monitor.
Is Solana a Commodity or Security?
Uncertainty around Ether’s status – whether it is a security or a commodity – was a key issue that resulted in the SEC’s initial hindrance in approving a spot ETH ETF.
Solana will face the same pressing question from the securities regulator.
In 2023, the SEC filed lawsuits against crypto exchanges Binance and Coinbase. In both filings, the regulator explicitly called Solana’s native token SOL an “investment contract” or security.
The SEC repeated the claim again in November 2023, calling SOL “crypto asset securities” in a lawsuit filed against crypto exchange Kraken.
The market watchdog did not mention BTC and ETH as securities in its lawsuits against the three exchanges.
Analyst View: Will There Be a Spot Solana ETF in 2024?
Now that we have compared SOL and ETH, let’s hear what the experts say about the possibility of spot Solana ETFs in 2024.
Techopedia reached out to Sergei Chmel, managing partner of alternative investment firm SeQuant Capital, to ask him whether talk of spot Solana ETFs was premature as of May 2024.
Chmel concurred and said:
“Solana mcap [market cap] is too small. Doesn’t make sense for any traditional allocator to put money there.”
For context, Solana’s market cap stood at over $75 billion, while market caps of spot ETF-approved BTC and ETH stood at $1.33 trillion (1,673% more than SOL) and $446 billion (494% more than SOL), respectively, as of May 24, 2024.
“I’d say a basket of tokens (like an index) would be a more logical next step rather than individual alts. But again, clarity about the status of tokens is needed. Even if L1s are commodities, how about DeFi or other projects tokens, etc.,” added Chmel.
Elsewhere, Nate Geraci, president of investment advisor ETF Store, crushed spot SOL ETF hopefuls by saying that there will be no Solana ETFs until “either CME-traded SOL futures exist or Congress puts legit crypto regulatory framework in place.”
No sol ETF until either CME-traded sol futures exist or Congress puts legit crypto regulatory framework in place…
Crypto ETF spigot turned off for a while after spot eth ETF approval… IMO. https://t.co/6CwP8UcOj4
— Nate Geraci (@NateGeraci) May 22, 2024
While there was no news of a SOL futures listing on CME at the time of writing, the US House of Representatives passed a crypto bill for the first time ever on May 22, 2024.
However, the proposed FIT21 crypto bill has a long way to go before becoming law. It has to be approved by the US Senate next. The bill will then return to the House and Senate for final approval.
Once approved, the President will have ten days to sign or veto the bill.
Based on current precedent/needs — Will happen within a few years of getting a CFTC regulated futures market. But congress & Market structure bills like FIT21 could make it happen quicker.
I think a SOL ETF would see most demand vs other digital assets (aside from BTC & ETH)
— James Seyffart (@JSeyff) May 22, 2024
Finally, James Seyffart, ETF research analyst at Bloomberg Intelligence said we could see a spot Solana ETF within “a few years of getting a CFTC regulated futures market.”
“But SEC isn’t dancing around SOL’s status like they have ETH. Those lawsuits against COIN and Kraken and others flat out say ‘Solana is a security’ lol. Which could very easily make this a very rocky road,” added Seyffart.
The Bottom Line
We cannot blame investors for stirring up talks about the possibility of spot Solana ETFs given how any positive development around it will support Solana prices.
It is safe to say that there is still a long way to go before we see a spot Solana ETF. The Solana community will be on the lookout for news related to SOL futures contracts listing on CME and the parliamentary development regarding crypto regulatory framework bills.
FAQs
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References
- Securities and exchange commission (Sec)
- Market Surveillance – CME Group (Cmegroup)
