US Elections: A Crucial Factor for Solana ETF Approval

The potential emergence of another altcoin exchange-traded fund (ETF) in the United States may largely hinge on the political landscape following the 2024 U.S. presidential election. Even though the U.S. Securities and Exchange Commission (SEC) approved fund managers to list spot Ether ETFs as of May 23, the journey to launch these ETFs is expected to be lengthy, according to SEC Chair Gary Gensler. Regardless, the speculation around the next cryptocurrency ETF, with Solana being a prominent candidate, has already started.

Despite growing enthusiasm for more crypto ETFs, expectations should be tempered, advises Ophelia Snyder, co-founder and president of 21.co, which sponsors and advises ARK Invest’s spot Ether ETF. Snyder suggests that while the approval of Ether ETFs could ignite interest, it won’t necessarily trigger a flood of new approvals. Strong demand from institutional investors might pressure ETF issuers to submit applications for altcoin ETFs, as indicated by increasing altcoin holdings among hedge funds and wealth managers, particularly Solana.

Snyder highlighted a significant interest in 21.co’s Solana exchange traded-product (ETP) listed on European platforms, which currently manages nearly $990 million in assets. The SEC has shown reluctance to consider other cryptocurrencies for ETFs. Approving spot Ether ETFs required considerable effort due to the agency’s cautious approach, and an altcoin ETF might face even tougher scrutiny unless influenced by various factors, including the U.S. elections.

Around the globe, spot Bitcoin, Ether, and altcoin ETFs are already a reality, yet U.S. regulators are known for being more conservative. Snyder emphasized that the U.S. regulatory framework tends to operate independently of international precedence. Eric Balchunas, a Bloomberg ETF analyst, mentioned that the SEC has a specific approval timeline that might extend the wait for an altcoin ETF for years. Key data from the Chicago Mercantile Exchange (CME) was crucial for the SEC to assess market integrity of prior ETFs. Currently, no futures altcoin ETFs have been listed in the U.S., suggesting a long road ahead.

Balchunas noted that the upcoming U.S. elections on November 5, 2024, could significantly impact the trajectory of altcoin ETFs. With cryptocurrency regulation becoming a political issue, the election’s outcome might be pivotal. Former president Donald Trump’s pro-crypto stance contrasts with President Joe Biden’s more cautious approach. A Trump victory could potentially accelerate the approval process for new crypto ETFs by appointing a new SEC commissioner less concerned with past procedures and regulations.

If Trump wins the presidency, ETF issuers might aggressively pursue new crypto ETF opportunities, experimenting with various types. Conversely, Balchunas believes that a Democratic victory would likely maintain the status quo, making the approval of altcoin ETFs rather unlikely even if SEC leadership changes. The outcome of the election will strongly influence the potential approval of an altcoin ETF, with any new initiatives most likely taking place post-election, in 2025.

Aside from political factors, any proposed ETF must meet certain criteria, including sufficient liquidity, decentralization, and resistance to price manipulation. Altcoins, by their nature, are more susceptible to market manipulation due to their smaller market capitalizations compared to Bitcoin and Ether. The potential for manipulation remains a significant concern, though it didn’t entirely prevent the approval of spot Bitcoin ETFs after thorough evaluations.

Another major challenge is the liquidity issue in the altcoin markets. Altcoins generally have lower volumes of daily trading compared to Bitcoin and Ether. Despite this, ETFs with low liquidity do exist in other markets, as illustrated by junk bond ETFs. Issues like premiums and discounts in low-liquidity markets can be managed by market makers. Alexis Sirkia, founder and former CEO of market maker GSR, believes that market makers can ensure liquidity for the most established altcoins, such as Solana.

The demand for single-asset ETFs could outweigh the favorability of baskets of altcoins. Yet, a basket of altcoins might mitigate liquidity concerns. According to Snyder, single-asset trackers are more preferable among investors.

Solana is considered a leading candidate for becoming the first altcoin ETF due to its market capitalization. But centralization issues remain a hurdle. High concentration of wealth in few wallets and previous network outages are significant challenges that must be addressed before Solana can be considered a viable ETF option. The SEC has categorized Solana as a security, posing additional obstacles for its approval as a spot ETF.

While the prospect for altcoin ETFs in the U.S. exists, the