Solana Spot ETF Faces Regulatory Hurdles: Could Brazil’s Success Pave the Way for US Approval?

Solana Spot ETF Faces Regulatory Hurdles

In 2024, the approval of spot ETFs for both Bitcoin and Ethereum in the US has sparked significant interest in whether Solana could be next in line. The approval of a Solana spot ETF in Brazil will serve as a valuable case study for its potential in the US market.

2024: The Year of ETFs

The crypto world witnessed a monumental shift in 2024 with the rise of exchange-traded funds (ETFs). The US Securities and Exchange Commission (SEC) made waves globally by approving the first-ever Bitcoin spot ETF in January, leading to a historic surge in Bitcoin’s price and cementing its place in the financial landscape. This event was followed by the approval of an Ethereum spot ETF, solidifying a year of transformation in the crypto space. While other countries had previously approved similar products, the SEC’s shift marked a new era in the US, turning what had once been considered taboo into a mainstream investment opportunity.

Amid this flurry of activity, the question on everyone’s mind is clear: which cryptocurrency will be next? Solana, a blockchain platform and the fifth-largest cryptocurrency by market cap, is currently the leading contender. Launched in 2020, Solana utilizes a proof-of-stake model and supports smart contracts, making it a strong competitor to Ethereum. Its regulatory position, however, puts it ahead of other major coins like Tether and BNB.

Why Solana?

Bitcoin and Ethereum’s legal status as commodities has been crucial in their ETF approvals, as a security classification would complicate ETF construction. Tether, as a stablecoin, is actively managed, making it unsuitable for a spot ETF, and BNB is closely tied to Binance, a company US regulators approach with suspicion. Solana, with its decentralized structure and significant market capitalization, offers fewer regulatory concerns and a potential for widespread demand.

Brazil’s recent approval of a Solana spot ETF in August has heightened the conversation. The Brazilian Securities Commission (CVM) didn’t stop at just one, approving a second Solana ETF shortly after. However, not all news has been positive. While Bitcoin’s ETF launch saw massive success, Ethereum’s ETFs struggled, with over $450 million in outflows since their introduction. Given this, can Solana expect better results?

SEC Rejection and Expert Opinions

The SEC recently rejected CBOE’s attempt to introduce a Solana ETF in the US, a move that some experts saw coming. Eric Balchunas, an ETF analyst at Bloomberg, commented that Solana’s ETF approval is unlikely without significant changes in SEC leadership. In contrast to Bitcoin ETFs, where the SEC had a deadline for decisions, the agency dismissed the Solana ETF before it even needed to give a formal ruling.

Despite this setback, some remain optimistic. CBOE’s application was made on behalf of two companies, VanEck and 21Shares. Matthew Sigel, Head of Digital Assets Research at VanEck, believes that Solana could still qualify for a spot ETF under specific legal precedents, particularly a 2018 case in which the CFTC successfully argued that a token was a commodity. If this argument holds, Solana might meet the criteria for a spot ETF.

However, Sigel’s position is not without its critics. While VanEck is determined to push forward, broader regulatory changes might be required. Nate Geraci, President of the ETF Store, has suggested that a Solana futures ETF could be a more attainable first step, as futures ETFs are subject to looser regulations. Both Bitcoin and Ethereum futures ETFs were approved before their spot counterparts in the US. Additionally, any future reforms to crypto regulation, potentially spurred by political changes, could reshape the landscape entirely.

What’s Next for Solana?

Solana appears to be the most likely candidate for the next ETF approval, but the road ahead remains long. As 2024 is an election year in the US, both political parties have expressed support for clearer crypto regulations. Even so, any regulatory changes will take time to come into effect, making it unlikely that a Solana spot ETF will be approved within the next year. A Solana futures ETF, regulated by the CFTC rather than the SEC, could be a more realistic near-term goal. If approved, it would establish a track record in the US market, making it harder for the SEC to ignore future spot ETF applications.

Brazil’s approval of a Solana ETF is a significant milestone, but it’s unlikely to directly influence US regulators. Even if the product performs exceptionally well in Brazil, the US regulatory landscape remains challenging. For now, Solana enthusiasts can take heart in the Brazilian example and continue advocating for broader international acceptance. While a Solana spot ETF in the US may not happen overnight, the pathway is clear. The crypto community has already witnessed Bitcoin’s journey from a fringe asset to a global financial staple, and with persistence, Solana’s ETF could eventually become a reality.