SEC Approval Chances for Solana ETFs

Alex Thorn, Head of Research at Galaxy Digital, recently assessed the filings for spot Solana Exchange Traded Products (ETPs) by VanEck and 21Shares. These filings, submitted to the US Securities and Exchange Commission (SEC) on June 28, aim to include Solana (SOL) in regulated financial markets like Bitcoin and Ethereum.

VanEck's proposal involves creating a commodity-based trust to hold Solana directly, allowing the ETP to closely follow Solana’s market price without staking the assets. After the announcement, SOL’s price increased by about 8%. However, the filing is still preliminary and lacks detailed structures like custodians and authorized participants, which are typically added later.

VanEck has not yet submitted the required 19b-4 form to trigger the SEC’s review process. Bloomberg analyst James Seyffart indicates that, once submitted, the review could take up to 240 days, potentially concluding around March 15, 2025. The SEC currently views Solana as an unregistered security due to ongoing litigation against Coinbase, complicating the approval process. "The SEC alleges Solana is an unregistered security, making rejection likely," stated Thorn.

The SEC has historically been cautious with crypto ETPs, preferring a step-by-step approval process starting with regulated futures markets, followed by ETPs based on those futures, and finally, US-based spot ETPs. Bitcoin and Ethereum ETPs have navigated this process with varying success. A crucial change occurred with an August 2023 DC Circuit Court ruling, which affirmed the adequacy of futures market surveillance, leading to the approval of Bitcoin spot ETPs in January 2024 and Ethereum ETPs in May 2024.

The recently passed FIT21 Act in the US House clarifies the regulatory boundaries between the SEC and the Commodity Futures Trading Commission (CFTC), potentially easing future cryptocurrency regulations. This act defines which digital assets are commodities and which are securities, possibly improving the chances for Solana ETP approval. "This clarity could enhance the odds of ETP approval for digital currencies beyond Bitcoin and Ether," Thorn noted.

The path for Solana ETPs is filled with regulatory challenges and uncertainties. Thorn of Galaxy Digital summarized, "VanEck’s early filing strategy is commendable, reflecting their commitment despite the hurdles." The FIT21 Act's passage could significantly influence future cryptocurrency regulation, clarifying asset classifications and potentially aiding Solana ETP approval.

In summary, while Solana ETPs face a tough regulatory path, the evolving landscape, especially with the FIT21 Act, could be crucial. VanEck's proactive approach showcases their dedication to advancing cryptocurrency ETPs, despite the challenges ahead.