Solana ETF Approval Process Won’t Be Smooth

Just months after Ethereum secured its first exchange-traded fund (ETF) approval from the SEC in the United States, the door seems to be opening for other cryptocurrencies. This has sparked excitement in the crypto sector as financial regulators begin to show interest in digital currencies beyond Bitcoin and Ethereum.

For instance, Brazil’s financial watchdog cleared the way for the country’s first Solana ETF, one of the very few worldwide. This marks a significant milestone for Solana, a cryptocurrency created in 2017, as it seeks to join the ranks of its more widely-traded peers, Bitcoin and Ethereum.

Institutions Push for Solana ETF

The Solana protocol was first conceived by Anatoly Yakovenko in a 2017 whitepaper, and its network development is overseen by the Solana Foundation, a Swiss non-profit organization. Known for its high transaction speed and low costs, Solana now boasts a market capitalization of $70 billion, making it one of the largest cryptocurrencies globally.

As the largest economy in Latin America, Brazil’s approval could lead to significant inflows into the Solana ecosystem. Over the past year, Solana’s price has risen considerably, fueled by expectations that it will lead the wave of altcoin ETFs in global markets.

However, despite the positive developments, securing approval in the U.S. markets—the ultimate goal—remains a significant challenge. Bitcoin was the first cryptocurrency to get the green light from the SEC for spot ETF trading, marking a new era of crypto adoption in traditional finance. Ethereum followed with ETF approval in May. But is Solana next in line?

Read more: Solana vs. Ethereum: An Ultimate Comparison

Bitcoin, Ethereum ETF Inflows. Source: SpotOnChain

In June, following these approvals, VanEck—one of the leading investment funds in the crypto market—formally submitted a request to the SEC to launch a Solana ETF. Just a day later, 21Shares followed suit, and shortly after, Cboe Global Markets filed a third request, signaling a strong push for Solana’s entry into the ETF market.

Tough Challenges Ahead

According to Katalin Tischhauser, head of investment research at Sygnum Bank, one major hurdle is the scarcity of regulated trading venues that the SEC considers suitable for market surveillance. Unlike Bitcoin and Ethereum, which benefited from CME futures trading at the time of their ETF requests, Solana’s current exchanges fall short of U.S. regulatory requirements as they are considered “unregulated.”

The SEC’s hesitation in approving crypto-based ETFs, particularly for Solana, stems from concerns about market manipulation. Solana’s history of network outages raises doubts about its reliability and stability, further adding to the SEC’s concerns.

Market demand and recognition also play a role. Beyond Bitcoin and Ethereum, other assets like Solana have little name recognition outside the crypto market. The U.S. regulatory landscape is another complicating factor, with no clear guidelines on what constitutes a sufficiently decentralized asset.

“I’ve been in the camp that we were going to get a Bitcoin ETF first, then we’ll get an Ethereum [ETF] and then it could be a very large gap until something else. You need clarity on the asset, whether it is a commodity or [a security.] Without that clarity, you’re not going to get an ETF,” Bloomberg Intelligence’s James Seyffart said.

Given the current environment and the crypto policy under Joe Biden’s administration, the chances of Solana’s ETF being approved by the SEC seem slim.

However, this could change drastically with a potential shift in government. Former President Donald Trump, who is leading in the polls, might provide the political backing needed to support such an initiative. On the campaign trail, Trump has dubbed himself a “crypto president,” suggesting that his return to office could lead to significant advancements in the sector’s regulation during a second term.

Read more: Solana ETF Explained: What It Is and How It Works

In the case of Bitcoin, it took years for the first ETF to be approved—a drawn-out legal battle between the SEC and the crypto fund issuer. Under SEC rules, the agency has 240 calendar days to decide whether to approve or deny requests. While approval would mark the third wave of spot cryptocurrency ETFs, achieving it would require perfect alignment of various factors.

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