Solana Sees $39M Outflows Amid Investor Concerns

Last week, Solana funds experienced a major outflow of $39 million, marking the largest weekly withdrawal on record for the cryptocurrency. Analysts believe this may be due to investor worries about Solana's heavy reliance on memecoins, which has raised concerns about the platform's stability and long-term prospects.

CoinShares’ latest report on digital asset fund flows highlighted these significant outflows, with $37 million coming from the 21Shares Solana ETP and another $2 million from the WisdomTree Solana ETP. These products, primarily traded in Europe, saw the majority of selling from their Swiss counterparts. Due to the anonymous nature of ETP trading, it's unclear who exactly was behind the sell-off, but the involvement of multiple investors is likely.

A 21Shares spokesperson mentioned that while some investors moved their holdings to other ETPs, like the TONN ETP, which tracks TON tokens, the outflows from Solana were unexpected. James Butterfill, head of research at CoinShares, expressed surprise, noting that Solana had previously been a favorite in the crypto world, attracting $167 million in inflows last year. However, this year has seen a significant shift, with Solana fund inflows reaching only $31 million so far, compared to Ethereum’s $867 million.

The decline in interest might be linked to concerns over Solana’s dependence on memecoins. In recent months, memecoin trading has become a significant part of Solana’s transaction volume, which may be unsettling to more conservative investors. This shift in sentiment could also affect the future demand for Solana ETFs, particularly in the U.S., where regulatory approval is still uncertain.

Both VanEck and 21Shares have applied for spot Solana ETFs in the U.S., but the recent outflows from European Solana funds could raise doubts about the potential demand if these ETFs are approved. Additionally, the SEC's ongoing concerns about whether Solana is a security add further complications.

In a recent podcast, VanEck’s head of research, Matthew Sigel, discussed the potential demand for Solana and Ethereum ETFs. He suggested that as investors currently focus on major tech stocks like Apple and Microsoft, smart contract blockchains like Ethereum and Solana could provide a hedge against potential losses in the tech sector.

Despite these outflows, it doesn't necessarily mean institutional investors are abandoning Solana. CypherPunk Holdings in Toronto recently acquired about 86,300 SOL, after previously holding none as of March 31. Additionally, GSR, a crypto trading firm, has stated that it remains long on SOL, indicating that there is still interest in the asset despite recent sell-offs.

The $37 million outflow from the 21Shares Solana ETP was an unusual event, especially considering it occurred in just one day. This outflow erased much of the progress the fund had made earlier in 2024. While the exact reasons for the sell-off remain unclear, the impact on the fund is significant.

Looking ahead, the approval of a Solana ETF in the U.S. seems challenging. The SEC’s reluctance to approve SOL-centric products suggests it will be difficult to secure approval. The agency has previously identified Solana as a potential security, complicating matters further. Eric Balchunas, a Bloomberg ETF analyst, noted that the SEC is unlikely to approve these products "unless there’s a change in leadership."

Nonetheless, VanEck remains committed to pursuing a Solana ETF. As Sigel pointed out, it wasn’t long ago that the SEC was hesitant about Bitcoin and Ethereum ETFs, yet those eventually gained approval. While the future of a Solana ETF is uncertain, the evolving regulatory environment means that change is always possible.