After the approval of the Ethereum ETF in the US, the discussion about the possibility of launching ETFs for other tokens has gained popularity. What challenges would approving ETFs for other tokens face? And which tokens are more likely to be approved earlier, SOL, PEPE, or DOGE?
According to industry experts, the consensus of the token and whether it is defined as a security are two key barriers. Currently, if there are no major changes in the regulatory framework in the US, the next ETF may not be available for another two to three years.
SOL has high expectations but low probability
On May 23, Brian Kelly, the CEO of BKCM, predicted on CNBC’s “Fast Money” program that Solana (SOL) could be the next cryptocurrency to launch an ETF in the US. However, this bold prediction was immediately met with opposition from industry experts, who pointed out several significant regulatory and market challenges.
Firstly, the US Securities and Exchange Commission (SEC) has classified Solana as a security, which was mentioned in lawsuits against major exchanges such as Coinbase and Kraken. This makes the approval process for Solana more complicated. Additionally, unlike Bitcoin and Ethereum, which have futures ETFs, Solana lacks this crucial market foundation.
James Seyffart, an ETF analyst at Bloomberg, stated that before any spot ETF is launched, Solana needs to have futures products listed on the Chicago Mercantile Exchange or a strong cryptocurrency regulatory framework established by the US Congress.
Currently, Bitcoin and Ethereum are the only two cryptocurrencies approved for futures ETFs in the US. Major ETF issuers also have little interest in launching ETFs for other altcoins, including Solana. BlackRock, a well-known ETF issuer, stated that they have no plans to launch an ETF for other altcoins, including Solana.
Nate Geraci, the President of ETF Store, agreed with Seyffart’s perspective, stating that without a futures market and clearer rules, it is unlikely for a spot Solana ETF to be available. He mentioned that Congress needs to establish a legal regulatory framework for cryptocurrencies before there is any chance of approving such a product.
Adam Cochran, a partner at Cinneamhain Ventures, believes that due to simpler regulatory situations, Litecoin (LTC) or Dogecoin (DOGE) may be the next cryptocurrencies to be approved for ETFs. Litecoin and Dogecoin both utilize a proof-of-work consensus mechanism similar to Bitcoin, which may make their regulatory paths less controversial.
On May 23, Grayscale launched two new investment trust funds, Grayscale Near Trust (NEAR) and Grayscale Stacks Trust (STX). Rayhaneh Sharif-Askary, the Chief Product and Research Officer at Grayscale, stated that they are committed to launching new products that allow investors to access the emerging and developing parts of the cryptocurrency ecosystem. Some believe that the movements of institutions like Grayscale may provide clues for the next ETF, but the situation is currently unclear.
Consensus and being defined as a security are key barriers
In a Twitter Space event titled “What will Ethereum Spot ETF bring?” co-hosted by PANews and OKX on May 23, the attendees also discussed this issue. @0xVeryBigOrange, the host of Zero × Qianghuopu, believed that the analysis should start with the top 10 or even the top 5 in terms of market capitalization. Apart from Bitcoin and Ethereum, SOL is almost impossible due to ongoing legal disputes. BNB is also unlikely, while DOGE may have a slightly higher probability.
“I have been paying attention to DOGE recently, but I still think the probability of other tokens launching ETFs immediately is extremely low, and launching or not launching would be a qualitative leap. As for others, you can use the process of elimination, and it is unnecessary to consider tokens with small market capitalization,” added @0xVeryBigOrange.
0xAA, an Ethereum ecosystem developer, shared the same view as @0xVeryBigOrange, stating that after Ethereum, he also believes that based on market capitalization, there might be more opportunities for meme tokens. However, he doesn’t think that the US will accept the investment in meme tokens by the public in the short term, so it will take time.
Mindao Yang, the founder of dForce, pointed out several indicators mentioned earlier, such as concentration of chips. If we look at this aspect, it is indeed within the top 20. He mentioned the relevance of stickiness, where Bitcoin and Ethereum have been in the market for over 10 years and have a highly decentralized distribution of chips. On the other hand, Solana only has four to five years. Additionally, he mentioned the concentration of its foundation, including the 10% ownership by FTX. When all relevant parties are considered, the concentration may be more than 20%, making it highly unlikely for Solana.
The approval of Bitcoin and Ethereum ETFs also has a prerequisite, which is trading on the Chicago Mercantile Exchange (CME) in the US. Since ETFs refer to prices, there are no other underlying assets traded on the CME except for Ethereum and Bitcoin. There may be a window period of at least two to three years without any new ETFs. If there is a third one, Dogecoin may meet the requirements, but its market capitalization is too low, and creating an ETF for a market cap of around $20 billion may not be advantageous.
Currently, Bitcoin and Ethereum have a strong advantage in the ETF space because their narratives are completely different. The narrative of Ethereum overlaps significantly with Solana. So, if Ethereum exists, why would we need Solana or other tokens? There may not be much narrative differentiation, so for the next two to three years, BTC and ETH may be the only eligible ETF investments, and it is difficult to see any others.
Phyrex, a data analyst, believes that it is likely on an annual basis. Regarding Dogecoin, it depends on the conditions for the SEC to approve a spot ETF. The first requirement is that it must be a non-security. “Let’s assume DOGE is a non-security, which is likely.”
The second requirement is sufficient consensus, which refers to the market value of funds. Another aspect is that when the SEC rejects an ETF, it includes market manipulation. Dogecoin has obvious market manipulation, especially when Elon Musk is involved. Whenever Musk mentions DOGE, it always causes a market reaction, and the price of DOGE may experience significant fluctuations. Therefore, in terms of high market concentration and market manipulation, the possibility of DOGE being approved for a spot ETF is very low.
In terms of market capitalization, whether it is DOGE or others, there is a significant difference. It is widely known that Solana is not possible, even if it meets the consensus requirement. The main problem lies with the SEC, which needs to save face. Especially now that the SEC has already targeted Solana as a security in the Coinbase lawsuit, there will definitely be a legal battle between Solana and the SEC. The only uncertainty is when it will happen.
Even if Gary Gensler (SEC Chairman) is replaced, the relationship between Solana and Coinbase will still be subject to legal battles. BNB is unlikely. Ripple (XRP) is possible, but Ripple has not won any SEC lawsuits. Ripple has only reduced its loss from 100 points to 80 points.
Looking at the overall cryptocurrency market, if a token meets the requirement of being a security, it may not have enough consensus. If it meets the requirement of consensus, it may not be considered a security. According to the SEC, apart from BTC, ETH, BCH, LTC, DOGE, and STX, none of the other tokens have a clear definition as non-securities.
As Mindao mentioned, it must be listed on the CME first. If this step is not seen, it may be more difficult.
Furthermore, even if new ETFs are launched in the future, it is only possible after FIT21 is approved, to see if the definition of the entire cryptocurrency industry changes. If this definition is changed, then there may be new possibilities. But if this definition remains unchanged, it is likely that the target will be on an annual basis, and it is not excluded that none of the existing tokens meet the requirements.
This article was originally published on PANews.