introduction
The 180-degree change in the attitude of the U.S. Securities and Exchange Commission (SEC) towards the Ethereum spot ETF has given the market hope for more crypto asset ETFs to be approved. According to industry sources, at least three asset management companies will start trading Ethereum spot ETFs from July 23. The market has begun to focus on the possibility of the next wave of crypto asset ETFs. Solana (SOL) is considered to be the third approved crypto asset ETF after Bitcoin ETF and Ethereum spot ETF, which has sparked widespread discussion. This article will analyze in detail the application process of SOL ETF, analysis of favorable and unfavorable factors, the possibility of obtaining SEC approval, and prospects.
1. Market performance of Bitcoin spot ETF
The approval process for Bitcoin spot ETFs has been a long and tortuous process. On January 11, 2024, BlackRock launched the world's first Bitcoin spot ETF (IBIT), marking the official entry of Bitcoin spot ETFs into the mainstream financial market. The launch of IBIT not only provides investors with a regulated investment channel, but also greatly enhances the market's trust in Bitcoin.
The market performance of Bitcoin spot ETF is very impressive, and the capital inflow has increased rapidly. As of July 16, the total net asset value of Bitcoin spot ETF reached US$56.72 billion. According to the second quarter financial report released by BlackRock on July 15, as of June 30, BlackRock's assets under management reached US$10.65 trillion, of which net inflows reached US$139 billion in the first half of this year. Since the launch of IBIT on January 11, 2024, BlackRock has become the world's largest Bitcoin spot ETF. IBIT currently holds 316,276 bitcoins, worth approximately US$18.3 billion.
The issuance and outstanding performance of Bitcoin spot ETF have laid a good foundation for the future development of crypto asset ETFs. The success of Bitcoin ETF not only shows the strong market demand for Bitcoin, but also demonstrates the potential of crypto asset ETFs in attracting investors and promoting market growth. It also provides strong support for the launch of other crypto asset ETFs.
2. The progress of Ethereum spot ETF
After the success of Bitcoin spot ETF, the market's attention to Ethereum spot ETF has gradually increased. On May 23, the U.S. Securities and Exchange Commission (SEC) approved the 19-b form submitted by the issuer, allowing Ethereum spot ETF to be traded on U.S. exchanges, taking the first step in the issuance of Ethereum spot ETF. A total of eight asset management companies are seeking approval for Ethereum ETFs, including BlackRock, Grayscale, Fidelity, ARK 21Shares, Invesco Galaxy, VanEck, Hashdex, and Franklin Templeton.
According to Reuters, three industry sources said that the U.S. Securities and Exchange Commission (SEC) has preliminarily approved at least three asset management companies to start trading Ethereum spot ETFs starting July 23. The SEC is likely to approve it on Monday afternoon, July 22, and the relevant products are expected to start trading the next day.
Analysts expect that the Ethereum spot ETF will attract great interest from investors and could attract up to $10 billion in new capital inflows within a few months of its launch. Tom Dunleavy, managing partner of MV Global, predicted: "We saw $15 billion in inflows for Bitcoin, and I think the Ethereum ETF could see inflows of between $5 billion and $10 billion."
Compared with Bitcoin ETF, Ethereum's market performance has increased, but it is far from reaching its previous market value peak. However, the launch of Ethereum ETF is still an important milestone in the market, providing a reference for more cryptocurrencies to apply for ETF in the future.
3. SOL ETF application kicks off
With the successive approval of Bitcoin spot ETF and Ethereum spot ETF, the market's attention has gradually turned to Solana (SOL) ETF.
On June 28, VanEck and 21Shares announced that they had submitted S-1 applications for SolanaETF to the US SEC, and VanEck even issued an open letter to explain the move. There was also news in the market that BlackRock may also be applying for SOL ETF.
On July 8, 2024, the Chicago Board Options Exchange submitted a 19b-4 document to the U.S. Securities and Exchange Commission (SEC). VanEck and 21Shares, two asset management institutions, plan to list and issue Solana spot ETFs. The submission of this document marks that the SOL ETF has officially entered the approval process. According to regulations, the SEC needs to make a reply to the 19b-4 document submitted by the Chicago Board Options Exchange within 240 days (expected to be March 2025).
Since the application news came out, the SOL market has performed positively. On June 28, the SOL price rose by 7%, and when the 19b-4 document was submitted on July 8, the SOL price rose again by 8%. This shows that the market is looking forward to and optimistic about the SOL ETF.
4. Analysis of favorable factors for SOL ETF approval
4.1 Technology and Application Advantages
The Solana blockchain uses a unique Proof-of-History (PoH) consensus mechanism, which enables it to handle higher transaction throughput with extremely low transaction fees. SOL's high performance and low cost give it a competitive advantage in areas such as decentralized finance (DeFi) and non-fungible tokens (NFTs), making it an attractive investment target.
4.2 Strong market demand
As one of the top five crypto assets by market capitalization, SOL has broad market demand and sufficient market depth, and has the potential to issue an ETF. The SOL ETF will attract investors interested in emerging crypto assets and provide diversified investment options, not just Bitcoin and Ethereum products.
4.3 Institutional Support and Investor Interest
The application of SOL ETF has been supported by many institutional investors, including VanEck and 21Shares. The participation of these institutions shows the market's high trust and expectations for SOL. The support of institutional investors is an important driving force for the approval of SOL ETF.
4.4 Promotion of FIT21 Act
On May 22, the U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21) by a vote of 279 to 136, showing strong political support and increasing the possibility that the bill will eventually be enacted into law. The FIT21 Act aims to amend existing securities and commodity regulations and establish a clear regulatory framework for digital assets. The bill stipulates the regulatory authority of the CFTC and the SEC, and clarifies that decentralized tokens are digital commodities and are regulated by the CFTC; non-decentralized tokens are securities and are regulated by the SEC. This classification helps resolve existing regulatory disputes and clears the way for ETF applications for crypto assets such as SOL.
5. Analysis of unfavorable factors for SOL ETF approval
5.1 Regulatory challenges and legal risks
The SEC has identified SOL as a security in multiple lawsuits, which has created a major obstacle to the approval of the SOL ETF. In previous lawsuits against Coinbase, Kraken and other companies, the SEC has stated directly that SOL is a security. In the United States, securities must meet a series of strict regulations and disclosure requirements, which increases the compliance costs and complexity of the SOL ETF. In the above two lawsuits, 18 tokens such as BNB, BUSD, ADA, MATIC, ATOM, FLOW, and ICP were also determined to be securities. These tokens are unlikely to pass ETFs in a short period of time.
5.2 Lack of SOL futures market
Both Bitcoin ETF and Ethereum spot ETF were approved when futures markets already existed. Their futures ETFs have been running for some time and have performed stably, which further supports the maturity and stability of the spot market. However, SOL lacks a futures market. Variant Fund Chief Legal Officer Jake Chervinsky said: "I guess the SEC will reject the SOL ETF application on the grounds of lack of a futures market." Dragonfly Capital partner Hasseb Qureshi said there are better reasons to prove that BTC and ETH-based ETFs meet the SEC's market monitoring requirements, because the futures market for trading these assets is already well developed, but without a listed futures market, market monitoring standards cannot be met.
5.3 Decentralization and transparency issues
Solana is not as decentralized as Bitcoin and Ethereum. In particular, FTX previously held a large amount of Solana, which increased its risk of centralization. The FIT21 Act distinguishes between securities and commodity cryptocurrencies. Securities cryptocurrencies are under the jurisdiction of the SEC, while commodity cryptocurrencies are under the jurisdiction of the CFTC. The basis for the division is the degree of decentralization of the cryptocurrency itself, and it is defined as: no one can control the entire blockchain network alone, and no one owns more than 20% of digital assets or voting rights.
5.4 Market competition and liquidity risk
Bitcoin is regarded as digital gold and a means of storing value, while Ethereum has become synonymous with blockchain technology due to the widespread application of its smart contract platform. In contrast, SOL, as a newer digital asset, has relatively low market recognition and trust. The relatively lack of investor confidence and participation may affect the market performance of its ETF. Although SOL ranks among the top in terms of market capitalization, its market depth and trading volume are still far less than Bitcoin and Ethereum. This means that the SOL ETF may face the problem of insufficient liquidity, especially when the market is volatile, and is more susceptible to price manipulation and sharp fluctuations.
6. Impact of Solana ETF approval
6.1 Direct Impact on the Solana Ecosystem
The launch of the SOL ETF will promote the development of the Solana ecosystem as a whole. More funds will flow into the Solana ecosystem, promoting the development of new projects and the expansion of existing projects. This will attract more developers and investors to participate, further enhancing Solana's competitiveness in the blockchain field.
The tokens in the Solana ecosystem are expected to see a significant uptrend. This upward trend will not only affect SOL itself, but will also affect other tokens in the Solana ecosystem.
6.2 Impact on the cryptocurrency market
More crypto asset ETFs will be launched: The launch of SOL ETF will inspire other crypto assets to strive for ETF approval and further enrich the investment products in the cryptocurrency market. The market will see more types of cryptocurrency ETFs emerge, promoting market competition and innovation. The launch of new cryptocurrency ETFs will provide investors with more choices and improve market liquidity and activity.
Market volatility and investment risks: Although the approval of the SOL ETF will bring positive impacts, it may also trigger market volatility and investment risks. The cryptocurrency market itself is highly volatile, and the launch of the SOL ETF may further amplify this feature, especially when market sentiment changes greatly.
6.3 Legal and regulatory implications
The approval of the Solana ETF will prompt regulators to further improve the regulatory framework for digital assets. If the FIT21 bill eventually becomes law, it will further promote the legalization and standardization of the cryptocurrency market and promote the healthy development of the crypto industry by establishing clear regulatory standards for digital assets. More and more institutional investors entering the cryptocurrency market through ETF products will help enhance the overall trust and transparency of the market. This will attract more traditional investors to enter the cryptocurrency market and expand the market size and depth.
7. Evaluation of the possibility of approval of Solana ETF and its prospects
In the short term, there are still uncertainties in SOL ETF. Although SOL has significant advantages in technology and application and has been supported by institutional investors, its securities attributes, market recognition, liquidity, decentralization and transparency still need to be overcome. In the future, with the advancement of the FIT21 bill and changes in the political environment, the approval process of SOL ETF will become clearer. The SEC needs to approve the application of SOL ETF within the next 240 days. Future regulatory trends and market reactions will be key factors affecting the success or failure of SOL ETF.
With the US presidential election approaching, the political driving force behind whether the SOL ETF can be approved cannot be ignored. Both the Republicans and Democrats are actively seeking votes from cryptocurrency supporters. Trump and Biden have expressed support for cryptocurrencies to varying degrees. Trump has publicly pledged to protect the future of Bitcoin and cryptocurrencies and has expressed his intention to stop the Biden administration from suppressing cryptocurrencies. Although the Biden administration initially took a tough stance, it has gradually shown a more relaxed attitude towards cryptocurrency regulation. Trump's public support and Biden's policy adjustments indicate that the cryptocurrency industry is likely to benefit no matter which side wins.
In summary, with the support of the current political environment and the FIT21 Act, the approval of SOL ETF is possible, but it needs to overcome challenges such as regulatory compliance and market recognition. Regardless of the final result, the application of SOL ETF has opened up new market discussions and provided valuable experience and reference for the launch of more crypto asset ETFs in the future.
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