Solana ETFs have just suffered a huge setback — here’s why

The US SEC appears reluctant to approve Solana ETFs; the regulator has yet to decide whether SOL is a security.

It took years for exchange-traded funds based on the spot price of Bitcoin to enter U.S. markets, and it was equally complex for fund issuers to try to get an Ether (ETH) ETF approved.

It looks like the road to launching the Solana (SOL) ETF is going to be even tougher, as the Securities and Exchange Commission is already starting to balk.

Billions of dollars have been invested in crypto ETFs in recent months as investors compete to gain access to the price movements of top digital assets without owning them directly.

Encouraged by the success of these products, issuers appear set to expand options by launching funds based on lower-capitalization cryptocurrencies.

But there’s a catch: The SEC has yet to decide whether SOL should be classified as a security, and is therefore blocking applications from being processed.

The approval process involves a lot of forms and back and forth between issuers and regulators. So what happened here?

The latest drama involves Cboe Global Markets, which filed 19b-4 filings on behalf of two companies hoping to launch Solana ETFs in the U.S.

This essentially means seeking permission from the SEC to list exchange-traded funds to be launched by VanEck and 21Shares, who are already players in the crypto ETF market.

This is an important step because it sets the clock, meaning regulators must respond by a specific deadline. (But in practice, the SEC has repeatedly delayed the issue by postponing decisions until a later date.)

But here’s the kicker: The countdown only begins once the 19-4b filings are officially added to the Federal Register, and according to a report released yesterday, it looks like Cboe’s request hasn’t even reached that stage yet.

That doesn’t mean the Solana ETFs will never see the light of day, but Cboe may need to go back to the drawing board and refine its language.

What about exporters?

Which brings us to the other part of the puzzle. Cboe can file as many 19-4bs as its heart desires, but a Solana ETF would only see the light of day if an issuer files a Form S-1 — laying out its plans in detail before it launches on a national exchange.

That’s where US investment management giant VanEck comes in. Its current offerings include HODL, the seventh-largest spot BTC ETF in a crowded market with over $648 million in net assets under management. Its Ether ETF counterpart, ETHV, is in fifth place with a much more modest $58 million.

Despite the SEC’s stubbornness against Cboe, VanEck maintains that it’s not going anywhere, Matthew Sigel, the fund’s head of digital assets research, told X this week:

“Remember, exchanges like Nasdaq and CBOE are making rule changes (19b-4) to list new ETFs. Issuers like VanEck are responsible for the prospectus (S-1). Ours remains in the game.”

The status of the 21Shares Solana ETF remains unclear, which could be a sign that the issuer will remain on the back burner while the regulatory drama unravels.

What makes SOL different?

At this point, you may be wondering why the SEC reluctantly allowed BTC and ETH ETFs to enter the market, but not SOL.

Well, after much hand-wringing — including concerns about “market manipulation” and a court showdown involving Grayscale — the SEC capitulated, apparently concluding that Bitcoin and Ether could be considered commodities, not securities. The fact that industry giants like BlackRock and Fidelity are lining up as issuers of ETF products based on the two largest crypto assets would also be a factor.

Now back to Solana, who unfortunately had close ties to Sam Bankman-Fried and a number of high-profile outages to his name. The SEC has been on the warpath for some time now, accusing companies like Coinbase of acting as an unregistered securities broker by allowing its customers to trade SOL in the first place. Softening its stance on ETF filings has the potential to weaken its position in active litigation elsewhere.

SOL/USDT 1-day chart, 2021-2024 | crypto.news

But beyond the legal and regulatory issues, there’s another troubling fact to address: If (or when) a Solana ETF launches, there may not be all that much demand.

Brand awareness explains why Bitcoin exchange-traded funds manage $48 billion in total assets, while Ether ETFs lag behind at $7.3 billion.

Much of this frenzied activity is being driven by BlackRock and Fidelity, neither of which has expressed any intention of launching a Solana product.

With both players absent, there may be little incentive for the SEC to change its stance.