Will SOL be the third cryptocurrency to get ETF approval?

Author: Jian Shu

Last Friday, I launched a poll: "After $BTC and $ETH, which token do you think will be the next to get an ETF?" The result? 63.6% of voters chose SOL.

Indeed, after ETH ETF approval, market expectations for a SOL ETF have grown significantly ⤵️

• Geoffrey Kendrick, Head of Foreign Exchange and Digital Asset Research at Standard Chartered Bank: Approvals for ETFs on cryptocurrencies such as SOL and XRP could happen by 2025.

• Anthony Scaramucci, Founder and Managing Partner of SkyBridge Capital: We will prepare for a SOL ETF.

• Brian Kelly, CEO of BKCM, said on CNBC: Solana could be the next cryptocurrency to get an ETF.

Why did so many people choose SOL?

Clearly, it's because SOL has "market consensus."

And consensus, in simple terms, is reflected in market capitalization. Judging solely from this metric—by checking CoinGecko’s Top 10 or Top 5—SOL is indeed the most likely candidate.

So what’s SOL’s biggest problem?

• June 5, 2023: In the Binance case, the SEC classified SOL as a security.

• June 6, 2023: In the Coinbase case, the SEC again classified SOL as a security.

Why does being labeled a security make it hard to get ETF approval? What's the connection?

In the U.S., securities are regulated by the SEC and must comply with a series of strict rules, including registration, disclosure requirements, and potential trading restrictions. The whole process is far more rigorous.

For example: SEC = supermarket🏪, cryptocurrency = fruit🍎, ETF = fruit basket🧺

• If deemed non-security, it's like labeling the fruit as "regular fruit"—easily placed into the fruit basket.

• If deemed a security, it's like labeling the fruit as "special fruit"—subject to more supermarket rules and requirements, making it difficult to include in the basket.

The SEC declared SOL a security just a year ago. It won't suddenly reverse that stance now (after all, they have pride too). Therefore, a SOL ETF is impossible in the short term.

Additionally, in those two lawsuits, 18 other tokens—including BNB, BUSD, ADA, MATIC, ATOM, FLOW, and ICP—were also classified as securities. For the same reason, these tokens also cannot get ETF approval in the near future.

But there's good news — FIT21 Bill

On May 22, 2024, the FIT21 bill passed the U.S. House of Representatives by a vote of 279 to 136. Its long-term significance for the industry is no less than that of the ETH ETF approval (even though market attention has been relatively muted).

Key points of the FIT21 bill for us👇

🔸 Clear classification of two types of digital assets and their regulators

• Decentralized tokens = digital commodities, regulated by CFTC

• Non-decentralized tokens = securities, regulated by SEC

🔸 Definition of decentralization

• No single person or entity can control the entire blockchain network

• No individual holds more than 20% of the digital asset or voting rights

FIT21 improves the overall regulatory framework for digital assets and expands industry freedom. Particularly the two points quoted above suggest it's paving the way for more ETFs.

To learn more about the FIT21 bill, check out the article by a16z:

https://a16zcrypto.com/posts/article/fit21-why-it-matters-what-to-do/

Summary

America’s policy shifts are well known. A token labeled a security today isn’t necessarily doomed forever.

Back to our original question: Which crypto will be the third to get an ETF? I believe SOL is one of the most likely candidates. Whether that happens within the next year or the next three to five years depends on how quickly the FIT21 bill progresses through the legislative process (House ✓ → Senate → Presidential signature), and how exactly the definitions of "digital commodity" and "security" are implemented.