Ethereum Spot ETF Passes, Is Solana Next?

As investors look forward to the U.S. approving an Ethereum ETF on Thursday, all eyes are turning to the next possible cryptocurrency. For many, Solana is an obvious candidate.

“You have to think about Solana being the next one,” CNBC host Brian Kelly said on Wednesday. “Bitcoin, Ethereum and Solana are probably the big three of this cycle.”

This prediction is not without reason.

Joe McCann, CEO of crypto investment firm Asymmetric Finance and a self-proclaimed Solana enthusiast, said Sol had to be on the shortlist given its position in the market.

According to CoinGecko, SOL has risen more than 68% this year. With a market capitalization of more than $77 billion, Solana is the fifth-largest cryptocurrency.

The Decentralized Finance (DeFi) Market Boost

The emergence of an Ethereum ETF, four months after the launch of a spot Bitcoin fund, is boosting the DeFi market. Ether has risen 29% in the past seven days, about six times the pace of Bitcoin. Meanwhile, Solana has performed even better, thanks to its smart embrace of memecoins earlier this year and unconventional moves like launching a new phone called Chapter 2.

“There shouldn’t be any reasonable objections to a Solana ETF similar to ETH.”

—Michael Cahill, Doura Labs

But the biggest story is how Wall Street giants, like BlackRock, which once scoffed at cryptocurrencies, are now scrambling to package them into cheap and easy-to-trade ETFs. In addition to BlackRock, Van Eck and Fidelity have also applied to issue Ethereum ETFs. The U.S. Securities and Exchange Commission is expected to approve the products on Thursday. As a proof-of-stake token similar to Ethereum, Solana may benefit from regulators' familiarity with product design.

Technically, there shouldn’t be any reasonable objections to a Solana ETF with uncollateralized features similar to the ETH product under review, and given developer activity, I put the probability of a Solana ETF being listed at over 75% this year and over 95% next year.

However, the bulls may be a little too optimistic.

Polymarket, a prediction market closely watched by crypto investors, reported a 7% probability of approval of the Solana spot ETF in 2024. The betting pool is also small, at just over $100,000. This suggests that the proposal is not attractive enough for speculators.

Solana Futures?

Nate Geraci, co-founder of the ETF Institute and president of the ETF Store, is equally pessimistic. At least not until the market sees the Solana futures contract. Long before the Bitcoin spot ETF was approved, Bitcoin futures contracts were approved for trading on the Chicago Mercantile Exchange, one of the world's largest derivatives exchanges. The same is true for Ethereum. Geraci also said that before approving the Solana ETF, Congress must approve a clear regulatory framework for digital assets.

Comprehensive legislation

Spot ETFs are typically marketed to retail investors, though institutions also use them heavily. While regulators have long been opposed to giving retail investors exposure to crypto ETFs, several developments appear to be paving the way for altcoin funds. On Wednesday, the U.S. House of Representatives passed the FIT21 Act, a sweeping piece of legislation to govern the digital asset market. The bill was backed by 71 Democrats, which is significant because the party has been less supportive of cryptocurrencies in the past. The bill still needs to pass the Senate, and President Biden has said he doesn't like the legislation. The White House said it would work with Congress to develop a regulatory framework for the industry.

Is this enough to make Solana a real contender?

Skeptics say it will be a while. Then again, just a few months ago, the prospect of an Ethereum ETF was considered one of the most unlikely things.