The U.S. Securities and Exchange Commission on Thursday approved Form 19b-4 forms for eight spot Ethereum exchange-traded funds from companies such as BlackRock and Fidelity. However, it may take a long time for other spot cryptocurrency ETFs to be approved in the country.
Issuers of spot Ethereum ETFs are still required to have an S-1 registration statement. It takes effect before the transaction begins. This process may take several days or weeks. Next, attention turned to cryptocurrencies that could receive ETF wrappers. Solana brush
-5.43%
It’s high on the guess list.
Anthony Scaramucci, managing partner at alternative investment firm SkyBridge and former White House communications director, was among the voices optimistic that the Solana ETF would be the next to launch. “We’re getting a SOL ETF. Get ready,” Scaramucci posted yesterday following the Ethereum ETF approval.
CNBC host Brian Kelly also speculated about the possibility of an ETF for the fifth-largest cryptocurrency by market capitalization. “We should probably consider Solana as the next one,” Kelly said Wednesday. “Bitcoin, Ethereum, and Solana are probably the big three of this cycle.”
Kelly echoed the comments of Solana investor Joe McCann, founder, CEO, and CIO of cryptocurrency fund Asymmetric. “The next ETF that comes out will probably be similar to Solana.” But McCann added, “We acknowledge that there is language that could have implications for the Coinbase lawsuit,” spotting one of the potential problems for Solana among other cryptocurrencies.
The ‘unregistered security’ problem weighing heavily on some cryptocurrencies
As McCann noted, Coinbase was sued by the SEC in June 2023, one day after the regulator filed a lawsuit against exchange rival Binance. The SEC sued Kraken in November last year for similar securities law violations.
Importantly, the lawsuit identifies several cryptocurrencies that the SEC considers “unregistered securities,” including Solana, Cardano, Polygon, Near, Internet Computer, and others. It means naming it.
So one of the problems facing some cryptocurrencies is that Bitcoin does not face that classification, and at least its asset, Ethereum, appears to have been assigned a similar “commodity-based” status in yesterday’s approval order. But Ether staking is a different matter. Issuers have rushed to remove the staking feature from recent spot Ethereum ETF submissions after separating the asset, ETH, from the staking feature appeared to be a critical factor in Ethereum ETF approval. .
This could be due to the SEC’s concerns about cryptocurrency staking, which could be another part of the Coinbase lawsuit. The agency argued that the feature violated securities laws.
“The SEC is not dancing around the status of SOL like it is holding ETH,” said Bloomberg ETF analyst James Seyffart. “The lawsuit against Coinbase, Kraken and others asserts that ‘Solana is a security.’ “Then this road could very easily become a difficult one.”
While the SEC has designated many of the top coins as securities, it has not done so for tokens closely related to Bitcoin, giving it few options. But we face different questions about demand and liquidity.
McCann pointed to Dogecoin as another contender, explaining that it is “definitely not a security,” given its comparables to Bitcoin’s launch. Others have highlighted Litecoin for similar reasons.
“This was essentially my and Alex Krüger’s interpretation of Joe McCann’s SOL interpretation of the last episode of Bits and Bips,” Seyffart said. “Even if it were possible, there isn’t much demand for an LTC ETF? Personally, I don’t even know about DOGE, but who knows!”
While Dogecoin and Litecoin may make more sense from a regulatory perspective, “what if I were an issuer (I don’t know) and spend a few hundred dollars to launch a Litecoin ETF,” Seyffart added. “I think the SOL ETF will be the most in demand compared to other digital assets (excluding BTC and ETH).”
CFTC regulated futures markets and futures ETFs needed first
Both the Bitcoin and Ethereum ETFs had futures products available first. This allowed us to analyze the correlation between CME futures products and spot rates for a longer period of time before considering the possibility of spot ETFs. The same could potentially be needed for other cryptocurrency ETFs.
CME Bitcoin futures launched in December 2017, and CME Ether futures launched in February 2021. The Bitcoin Futures ETF was launched in the US in October 2021, and the Ethereum Futures ETF was launched in October 2023.
Based on current precedent, Seyffart suggested that a spot Solana ETF could arise within a few years after a CME-regulated futures market is established. But “parliamentary and market structure legislation like FIT21 could make this happen faster,” he added.
The U.S. House of Representatives on Wednesday passed the Financial Innovation and Technology for the 21st Century Act (FIT21), a cryptocurrency market structure bill aimed at regulating the industry as a whole. This marks the first time a comprehensive cryptocurrency bill has been voted on in full. house.
FIT 21 would give the Commodity Futures Trading Commission more authority and funding to oversee cryptocurrency spot markets and “digital products,” particularly Bitcoin, but would also allow cryptocurrency projects to self-certify as “decentralized,” the SEC said. Chairman Gary Gensler argued. The bill also creates a process to allow secondary market trading of cryptocurrency assets if they were “initially offered as part of an investment contract.”
However, there is no companion bill for FIT21 in the Senate, and top lawmakers in the Democratic-dominated Senate have shown no interest in or opposed the bill in the past. The Biden administration also opposed FIT21 but said it “wants to work with Congress” on a balanced framework for digital assets.
Although it is unlikely that FIT21 will be brought up in the Senate this year, the bill could set the stage for the next Congress in January.
Since a FIT21-type bill would likely place cryptocurrency markets under CFTC oversight, some have questioned whether this would override the SEC’s current views. “Yes and no,” Seyffart replied. “The SEC still decides on an approval order for all ETFs. And they do not approve ETFs that hold digital assets that do not have a federally regulated trading venue or a federally regulated futures trading venue.”
Nate Geraci, ETF Store President, added, “There will be no Sol ETF until there is a Sol futures traded on CME or Congress comes up with a legitimate cryptocurrency regulatory framework.” “Crypto ETF cap was turned off for some time after approval of spot ETH ETF.”
This position is also reflected in the market, with Polymarket, an Ethereum-based decentralized prediction platform, setting the odds for the Solana ETF in 2024 at just 11%, with a bet of just $122,657.
So even if Solana can avoid the SEC’s “unregistered security” label, it may be a while before the spot Solana ETF or any other spot cryptocurrency ETF in the U.S. is fully approved.
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