U.S. Elections: A Key Variable for Solana ETF Approval

The Pandora’s Box of Ether ETFs

The approval of spot Ether ETFs by the U.S. Securities and Exchange Commission (SEC) on May 23 has ignited widespread speculation about the potential for other altcoin ETFs. With Solana, XRP, Chainlink, and Dogecoin among the top contenders, the crypto market is buzzing with anticipation. However, the optimism might be premature, given the regulatory landscape and the upcoming U.S. presidential election.

Political Winds and Market Moves

The approval of spot Ether ETFs was a significant milestone, but it came with a caveat from SEC Chair Gary Gensler, who noted that "it will take time" for these ETFs to launch. Despite this, speculation about the next crypto ETF is rampant, with Solana emerging as a prime candidate.

However, according to Ophelia Snyder, co-founder and president of 21.co, expectations for new altcoin ETFs should be tempered.

Institutional Interest and Solana's Popularity

Institutional investors have shown substantial interest in altcoins, particularly Solana. An April report by CoinShares revealed that hedge funds and wealth managers have significantly increased their holdings in Solana.

Snyder emphasized the popularity of 21.co’s Solana exchange-traded product (ETP) on European exchanges, which boasts nearly $990 million in assets under management.

Regulatory Hurdles and Market Integrity

The SEC's cautious approach to cryptocurrency ETFs is evident. Approving spot Ether ETFs was already a challenging step for the commission, and an altcoin ETF could be even more difficult to accept.

Bloomberg ETF analyst Eric Balchunas explained that the SEC follows a stringent timeline for ETF approvals, which could mean a long wait for the next altcoin ETF.

The SEC’s decision-making process involves a thorough investigation of market integrity, utilizing data from the Chicago Mercantile Exchange (CME) to assess correlation with spot prices.

The Election Factor

The U.S. presidential election on November 5, 2024, could be a pivotal moment for the future of altcoin ETFs. Crypto regulation has become a hot political topic, with former President Donald Trump positioning himself as a pro-crypto candidate, contrasting with President Joe Biden’s more cautious stance.

Balchunas noted, "If Trump wins, we could see other coins as ETFs," suggesting a potential shift in regulatory attitudes depending on the election outcome.

Price Manipulation Concerns

Price manipulation remains a significant concern for the approval of altcoin ETFs. The market capitalization of Bitcoin and Ether dwarfs that of other altcoins, making smaller markets more susceptible to manipulation. CCData’s research lead Joshua de Vos highlighted this issue, noting that "the altcoin market is prone to market manipulation as the markets are still very nascent." However, Balchunas argued that some level of price manipulation does not preclude the existence of an ETF, citing examples from other sectors.

Liquidity Challenges

Liquidity is another critical factor for altcoin ETFs. Altcoins typically have lower trading volumes compared to Bitcoin and Ether, raising questions about their viability as ETF assets. Sebastian Heine, chief risk and compliance officer at Northstake, stressed the need for a large market cap and significant daily trading volume. Despite this, Balchunas pointed out that ETFs can exist without high liquidity, drawing parallels with junk bond ETFs.

Solana's Viability

Solana stands out as a leading candidate for the next altcoin ETF, but it faces challenges related to centralization and market manipulation. De Vos explained that Solana ranks poorly on decentralization metrics, with a high concentration of wealth among a few wallets.

Additionally, Solana has experienced several network outages, raising concerns about its reliability. The SEC has also labeled Solana as a security, further complicating its path to ETF approval.

The Road Ahead

The future of altcoin ETFs in the U.S. is intricately tied to political and regulatory developments. While Solana and other altcoins show promise, they must overcome significant hurdles to meet U.S. regulatory standards. As the 2024 U.S. presidential election approaches, the crypto community will be watching closely, hopeful that political shifts might pave the way for new altcoin ETFs.