Solana-ETF: what is it, and when will it be adopted?
Since 2017, when the first "crypto boom" took place, the popularity of cryptocurrencies began to develop rapidly: first, large international companies invested in crypto, then some of them started launching their products on the blockchain or entering into agreements with Web3 platforms and, finally, the first ETFs for cryptocurrencies — Bitcoin-ETF and Ethereum-ETF — were adopted.
What is a Solana-ETF?
To understand what a Solana-ETF is, we first need to understand what an ETF is:
An ETF (Exchange Traded Fund) is an exchange-traded fund representing an asset's price, such as stocks or indices. An ETF does not require the direct purchase and holding of the asset itself but merely reflects its price at the expense of which an investor can make money.
ETFs are traded on traditional stock exchanges, allowing investors to trade cryptocurrencies on familiar platforms governed by strict rules and offer complete legal protection. However, due to the peculiarities of regulation, a stock exchange needs to go through several steps before ETF trading can be launched:
- Acquire the underlying asset to create the ETF;
- Create ETF shares representing the fund's assets;
- List on an exchange (NASDAQ, NYSE, and so on);
After that, the exchange can start trading, but the work with ETFs does not end there, as it is additionally necessary to calculate the value of the fund's shares and determine the size of the fund's management fees.
For example, in the case of bitcoin ETFs, an investor only needs to purchase an exchange-traded fund on one of the available exchanges and wait for its price to rise. At the same time, bitcoin itself does not need to be purchased, and accordingly, it does not need to worry about its safety or to withdraw to a wallet for cold storage — the exchange handles all this.
Following the above, Solana ETF is an exchange-traded fund that represents the price of Solana cryptocurrency (SOL), allowing you to speculate on the cost of this asset without having to buy it directly.
What is currently known about Solana-ETF?
As of November 2024, Solana-ETFs are not in the launch phase or even approved by regulators such as the US Securities and Exchange Commission.
However, as investor interest in Solana-ETFs grows, there is already access to alternative trading tools that allow trades in the SOL cryptocurrency analog:
- Solana Trust by Grayscale (GSOL). Grayscale is a sizeable international fund, one of the first to launch bitcoin and ether ETFs. However, Grayscale Solana Trust is a closed-end fund that offers a fixed number of SOLs at a premium or discount;
- VanEck Solana ETN is an exchange-traded note that tracks the price of SOL. Like Grayscale, VanEck is a significant investment firm that projected Solana to be one of the top three cryptocurrencies by capitalization in 2023, so it's not surprising that it introduced an ETN on SOL. Unlike ETFs, ETNs are unsecured debt obligations issued by a bank or other lending institution.
Pros and cons of Solana ETFs compared to SOL cryptocurrency
On the one hand, owning the Solana digital asset means you have complete control over your funds. In other words, no one can prohibit an investor from withdrawing his capital from the cryptocurrency wallet or freezing funds on it — this is the main advantage of digital assets.
In addition, at any time, an investor can sell his SOL cryptocurrency on a decentralized exchange (DEX) while there are trading halts on centralized cryptocurrency and stock trading platforms.
However, when using digital assets alone, an investor can make a mistake that leads to an irretrievable loss of funds, such as sending cryptocurrency to the wrong address or losing a private wallet key.
In the case of ETFs, this cannot happen because the investor does not store the assets himself, and professionals provide their security. Therefore, after buying Solana-ETF, the investor will not have to worry that someone, for example, can steal funds from his account.
Another of the pluses of ETFs is the presence of regulation. Owners of cryptocurrencies are not legally protected in any way, as the crypto market is still poorly regulated. However, the stock market is controlled by strict rules, and to launch any investment product, you must go through all the necessary legal procedures. That is why it can take several months to approve and launch ETFs on cryptocurrencies.
It's also important to realize that the SOL-ETF instrument differs from a SOL. A SOL-ETF merely tracks the price of the underlying cryptocurrency, which means that under certain market conditions, their prices may vary to some degree.
Conclusion
As the crypto market capitalization grows, the likelihood of Solana-ETF approval becomes higher and higher. Analysts have previously noted that the Solana-ETF is the most likely to be approved by the SEC after the Bitcoin-ETF and Ethereum-ETF.
Due to the presence of stock market regulation, Solana-ETF can become a convenient financial instrument for traditional traders and attract new, including major players in the cryptocurrency sphere.