The approval of spot Bitcoin and Ethereum ETFs marked a watershed moment for the cryptocurrency industry. This has led to widespread speculation: which digital asset might be next to receive such a regulatory green light? Solana (SOL) is frequently mentioned in these discussions, but a closer look at the regulatory framework and market realities suggests a SOL ETF faces significant hurdles.
Why the ETH Spot ETF Was Approved
The groundwork for Ethereum's approval was laid when the US Securities and Exchange Commission (SEC) approved the spot Bitcoin ETF earlier this year. In its explanatory statement, the SEC outlined a crucial analytical framework, often referred to as the "Ark Analysis Test." This framework established the necessary precedents and conditions for any cryptocurrency seeking a spot ETF.
Key factors from this framework include:
- Existence of a Mature Futures Market: The cryptocurrency must have a futures ETF trading on a regulated, recognized exchange like the CME (Chicago Mercantile Exchange). This established derivatives market is seen as a critical foundation.
- Strong Price Correlation: There must be a demonstrably high correlation between the prices on the futures market and the spot market. This indicates that the spot market is robust and resistant to manipulation, which was the SEC's primary concern for previous rejections.
- Proven Market Maturity: The futures ETF must have been operational for a sufficient period, showing stability and healthy trading volumes, thereby supporting the case for the spot market's maturity.
Ethereum met all these criteria. It has a long-standing futures market on the CME, and the SEC's own analysis showed a near-perfect correlation between its futures and spot prices over a 90-day rolling period. Denying Ethereum after approving Bitcoin would have constituted discriminatory enforcement, a position the SEC was unlikely to win in court following its loss to Grayscale.
The Political Shift and the FIT21 Bill
The timing of the Ethereum ETF's approval was also heavily influenced by politics. A significant bipartisan shift is occurring in the U.S. regarding crypto regulation, exemplified by the FIT21 (Financial Innovation and Technology for the 21st Century Act) bill.
This legislation aims to resolve the long-standing jurisdictional battle between the SEC and the Commodity Futures Trading Commission (CFTC) over digital assets. Its core provision is a clear distinction:
- SEC Jurisdiction: Crypto assets deemed to be "securities."
- CFTC Jurisdiction: Crypto assets classified as "commodities."
The bill proposes using a decentralization threshold to make this distinction. If no single entity or group of coordinated entities holds 20% or more of the supply, the asset is likely to be considered a decentralized commodity (like Bitcoin and, crucially, Ethereum). This objective measure, focused on holder distribution rather than technical control, provides a much-needed regulatory clarity.
Facing this legislative momentum and a losing legal argument, the SEC likely chose to approve the Ethereum ETF rather than continue a futile fight. This represents a major policy reversal and sets a new standard for the industry.
The Major Hurdles for a Solana ETF
Given this new framework, the path for a Solana spot ETF appears exceptionally difficult for several key reasons.
1. Lack of a Futures ETF
The established precedent requires a foundational futures market. Solana currently has no futures ETF trading on a regulated exchange like the CME. This is the first and most significant barrier. Without this foundational building block, an application for a spot ETF lacks the necessary precedent and regulatory argument for approval.
2. Questions Over Decentralization
The FIT21 bill emphasizes holder distribution. Solana faces scrutiny here due to the significant holdings of the now-bankrupt FTX estate. If these holdings are deemed to be controlled by a single entity (the bankruptcy estate), it could push Solana's concentration above the proposed 20% threshold, potentially classifying it as a security under the new rules. This perceived centralization is a major red flag for regulators. 👉 Explore more strategies for evaluating asset decentralization
3. Market Cap and Liquidity Concerns
While substantial, Solana's market capitalization is an order of magnitude smaller than Bitcoin's and Ethereum's. Regulators perceive smaller markets as having less depth and being more susceptible to price manipulation. The SEC is far more comfortable approving products for the largest, most liquid assets that form the core of the crypto market.
A Comparison with Hong Kong's ETF Market
The struggles of Hong Kong's spot crypto ETFs further highlight the importance of market depth and investor access. Despite being launched earlier, their trading volumes are a fraction of their U.S. counterparts. Key reasons include:
- Smaller Market Size: The pool of available capital in Hong Kong is vastly smaller than in the U.S.
- Limited Investor Base: Mainland Chinese capital, a primary source for Hong Kong markets, is currently prohibited from flowing into these crypto products.
- Structural Disadvantages: Higher fees and less efficient creation/redemption processes make them less attractive to large, institutional arbitrageurs who provide liquidity.
This demonstrates that even with regulatory approval, success is not guaranteed without deep, liquid markets and broad investor access—advantages that the U.S. market currently holds dominantly.
Frequently Asked Questions
Q: Could the FIT21 bill change SOL's chances for an ETF?
A: Yes, but not necessarily for the better. While it would provide clarity, its current emphasis on a decentralization threshold based on holder concentration could actually work against Solana due to the FTX holdings. It would first need to establish a futures ETF and then overcome the decentralization concerns.
Q: Is Ethereum now definitely considered a commodity?
A: The SEC's approval of the spot ETF is a de facto acknowledgment that it is not a security, aligning with the CFTC's long-held view. The FIT21 bill would make this classification explicit in law, placing Ethereum firmly under CFTC jurisdiction as a commodity.
Q: What is the most important factor for any future crypto ETF?
A: The existence of a regulated futures market is the non-negotiable first step. This was the cornerstone of the argument for both Bitcoin and Ethereum. Any asset without this will remain in a regulatory waiting room.
Q: Besides SOL, what other cryptocurrencies are being discussed for ETFs?
A: Other large-cap assets like XRP and Cardano (ADA) are sometimes discussed. However, they face the same fundamental hurdles: the lack of a futures ETF and ongoing regulatory questions that must be resolved first.
Q: How long does it take to get a futures ETF launched?
A: The process is lengthy, involving regulatory proposals, public comment periods, and final approval from the CFTC. It can take many months or even years, and there is no guarantee of success.
Q: Will the upcoming U.S. election impact crypto ETF approvals?
A: Absolutely. The political climate is a major factor. A shift in administration could lead to changes in SEC leadership and policy, potentially altering the regulatory approach to future applications, either making it more or less favorable.
Conclusion
While the success of Bitcoin and Ethereum ETFs has ignited excitement for a wave of new products, the regulatory bar remains high. The established framework requires a futures market, a high degree of decentralization, and significant market depth.
Solana, despite its technical merits and strong community, currently falls short of these criteria. The lack of a futures ETF is a definitive barrier, and questions regarding its holder concentration present a significant additional challenge. For these reasons, a Solana spot ETF is highly unlikely to be approved in the current market cycle. Investors and enthusiasts should focus on the progress of a potential Solana futures product as the first real indicator of a changing regulatory stance.