Why BlackRock is holding back on Solana ETF

While Bitcoin and Ethereum have been successful in the ETF sector, BlackRock’s caution could signal a longer wait for other crypto assets.

In the cryptocurrency industry, where speculation and hype often overshadow facts, recent comments from Samara Cohen, BlackRock’s chief investment officer for ETF and index investments, offer a sobering perspective.

In an interview with Bloomberg’s Katie Greifeld and Eric Balchunas on July 29, Cohen made it clear that for now, Bitcoin and Ethereum are the only cryptocurrencies that meet BlackRock’s strict criteria for exchange-traded funds.

Samara Cohen, CIO of ETFs and Index Investments at BlackRock, discusses private assets, whether they can be part of an ETF, and the role of tokenization. She speaks with Katie Greifeld and Eric Balchunas on Bloomberg ETF IQ https://t.co/n6lslT6wzz picture.twitter.com/QfALQuzYls

— Bloomberg Crypto (@crypto) July 29, 2024

Cohen’s statements come at a time when the cryptocurrency market is filled with excitement and anticipation following the successful launch of Ethereum ETFs on July 23, 2024.

In the interview, the BlackRock executive noted that despite some outflows from higher-priced ETF products, demand for direct exposure to Bitcoin and Ethereum remains high, with investors turning to these two products for diversification and potential returns.

The launch, which had a huge impact on the market, increased the weekly trading volume of cryptocurrency funds to $14.8 billion, reaching the highest level since May.

Those who keep their finger on the pulse of the cryptocurrency industry say investors are eager to explore new avenues.

In that context, Solana has often been speculated as a potential new entrant into the ETF space, but Cohen’s comments pour cold water on those hopes, at least for now.

Bitcoin and Ethereum: The Selected Ones

Listening to Cohen, it becomes clear that BlackRock’s decision to focus solely on BTC and ETH as viable ETF products is driven by practicality and demand:

We really look at investability to see what meets the criteria, what meets the bar in an ETF.

It is instructive that he uses the word “investability,” a term that encompasses factors such as market depth, regulatory environment, and the ability to accurately track the price of an asset.

According to Cohen, both Bitcoin and Ethereum not only meet these criteria, but also align with what BlackRock has heard from its clients.

While some may be bothered by this conservative approach, it has its merits: Bitcoin and Ethereum have long established themselves as the big boys of crypto in terms of both market cap and institutional interest.

As of this writing, Bitcoin alone accounts for over 52% of the cryptocurrency’s $2.5 trillion value. Often referred to as “digital gold,” it has become the crypto industry’s standard-bearer and is even praised by its advocates as a relatively stable store of value.

Ethereum, on the other hand, has established itself as a platform for decentralized applications (dapps) and smart contracts, offering a wide range of use cases.

Both cryptocurrencies have robust infrastructures that provide a level of regulatory oversight and market stability not found in most other digital assets, including futures contracts on the Chicago Mercantile Exchange.

The Solana puzzle

The buzz around Solana as a potential ETF candidate is gaining momentum, especially after VanEck and 21Shares filed for a Solana ETF in the U.S.

Taking the agenda further, Solana’s advocates argue that it is a faster and cheaper alternative to Ethereum, and that it has impressive scalability and low transaction fees. This has led to a surge in on-chain activity, further fueling the narrative that Solana is the next big thing in crypto.

But despite its technological advances and growing market cap (currently just over $84 billion, according to CoinGecko), Solana still faces significant hurdles.

First, it lacks CME futures, an issue that would make regulatory approval for a cryptocurrency-based ETF difficult. Without those futures, a Solana ETF would lack a key mechanism for market hedging and price discovery, making it difficult for the ETF to operate effectively.

And while Solana has garnered attention and praise from organizations like Franklin Templeton, calling it an “exciting and important development,” it still lacks the widespread institutional support enjoyed by Bitcoin and Ethereum.

And going back to Cohen’s interview, he highlighted a broader issue: Current interest in crypto ETFs outside of Bitcoin and Ethereum is limited.

Asked by Katie Greifeld about the possibility of a Solana ETF, Cohen was blunt: “Not in the near term.”

Wider market view

Looking at the current state of crypto ETFs, it’s not much of an exaggeration to say that it reflects a broader trend in traditional financial markets: a cautious approach to emerging technologies and assets.

Moreover, while there is an undeniable interest in diversifying beyond Bitcoin and Ethereum, there are significant regulatory and technical challenges. For example, the U.S. Securities and Exchange Commission has been particularly strict in its criteria for approving crypto ETFs, frequently citing concerns about market manipulation and a lack of investor protections.

Therefore, without clear regulatory guidance, even the most promising crypto assets will face an uphill battle in achieving ETF status.

However, the successful launch of Ethereum ETFs has provided a blueprint for future products but has also revealed the complexities involved in such products.

Even Cohen noted in a Bloomberg TV interview that BlackRock has yet to include crypto ETFs in its model portfolios, emphasizing the need for thorough due diligence and risk assessment.

Interestingly, despite BlackRock having no immediate plans for its Solana ETF, the crypto asset has seen a surge in interest and activity. As Crypto.news recently reported, there was a significant increase in on-chain activity for Solana after VanEck and 21Shares filed for spot Solana ETFs.

This suggests that while not all institutional investors may be ready to embrace other crypto ETFs, there is growing grassroots interest in such assets.