Explore the potential for Solana and other altcoins to follow in the footsteps of Ether ETFs. How will U.S. regulatory changes and the 2024 presidential election impact the approval of new crypto ETFs?
The approval of spot Ether ETFs by the U.S. Securities and Exchange Commission (SEC) on May 23, 2023, has sparked speculation about the potential for other altcoin ETFs. With Ether ETFs paving the way, Solana (SOL) has emerged as a top contender for the next altcoin ETF. However, is the crypto market's optimism well-founded, or are expectations too high?
Solana’s strong performance on European exchanges, where 21.co’s Solana exchange-traded product (ETP) boasts nearly $990 million in assets under management, highlights its potential. Despite this, Ophelia Snyder, co-founder and president of 21.co, advises caution, suggesting that the approval of ETH ETFs is unlikely to trigger a wave of altcoin ETF approvals in the U.S.
The SEC has been hesitant to embrace altcoins for ETFs, with the approval of spot Ether ETFs already being a significant hurdle. Eric Balchunas, a Bloomberg ETF analyst, notes that the approval process for new ETFs follows a strict timeline and significant market data requirements. This process could mean years before another altcoin ETF sees approval, unless political changes alter the regulatory landscape.
The upcoming U.S. presidential election in November 2024 could be a game-changer. If Donald Trump, a pro-crypto candidate, wins, the SEC's stance could shift dramatically. Balchunas believes Trump’s victory might lead to a more lenient SEC, potentially accelerating the approval of various crypto ETFs. Conversely, a Democratic victory could maintain the current regulatory caution, making an altcoin ETF less likely.
One of the primary challenges for altcoin ETFs is market integrity. The relatively smaller market caps of altcoins like Solana make them more susceptible to price manipulation compared to Bitcoin and Ether. Despite this, ETFs can manage some price manipulation, as seen with ETFs holding volatile stocks like GameStop.
Liquidity is another critical factor. Altcoin markets generally have lower liquidity than Bitcoin or Ether, which could lead to issues with premiums and discounts in ETF pricing. However, market makers could help mitigate these issues, enhancing overall market liquidity and stability.
Solana faces specific challenges related to decentralization. High concentrations of wealth among a small number of wallets, with the top 10 holders controlling 7.29% of the supply, raise concerns about centralization and potential price manipulation. Furthermore, Solana’s history of network outages and the SEC’s classification of Solana as a security complicate its prospects for ETF approval.
For Solana and other altcoins to become viable ETF options, several conditions must be met. These include demonstrating sufficient liquidity, decentralization, resistance to price manipulation, and gaining clear regulatory classifications. While the demand for single-asset trackers like Solana is strong, the likelihood of approval depends heavily on regulatory attitudes, which could shift following the 2024 U.S. presidential election.
The approval of an altcoin ETF in the U.S. remains uncertain and is influenced by various factors, including market integrity, liquidity, decentralization, and political outcomes. While Solana appears to be a leading candidate, it must address significant challenges to meet regulatory requirements. The upcoming U.S. elections could be pivotal in shaping the future of altcoin ETFs, potentially ushering in a new era of crypto investment opportunities.
As the crypto market evolves, the potential for altcoin ETFs will depend on both market dynamics and regulatory developments. Investors and industry stakeholders will be watching closely to see how these factors unfold in the coming years.
(DANIEL RAMIREZ-ESCUDERO, COINTELEGRAPH, 2024)