In the wake of the spot Bitcoin and Ethereum ETF approvals, there's been a lot of speculation about which crypto might be next. Already, a handful of names have been suggested, including all of the usual suspects: XRP, Solana (SOL 5.37%), Cardano, Litecoin, and Avalanche.
Of these, Solana has the best chance of getting a spot ETF. In fact, this could happen as early as January 2025. From my perspective, there are two key factors that make this likely to happen.
Market demand
In terms of market cap, Solana ranks fifth among all major cryptocurrencies. That's a huge determining factor, because market cap can be useful as a proxy for investor demand. As a general rule of thumb, Wall Street isn't going to launch a product if there isn't sufficient demand for it, so it's worth looking into how much demand is coming from both retail and institutional investors.
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At the end of June, crypto investment firm GSR ran the numbers and concluded that Solana trailed only Bitcoin and Ethereum in terms of overall demand. The firm's "demand analysis" took into account three key factors: (1) market cap and overall trading volume, (2) assets under management of investment products already in the marketplace, and (3) size, activity, and reach of the online community for a specific token. Across all of these metrics, Solana outpaced rivals XRP, Cardano, and Avalanche.
There's also great data available from CoinShares, which tracks institutional investor inflows into and out of the major cryptocurrencies. According to its latest report from early August, Solana still has a clear lead over major rivals such as XRP, Cardano, and Litecoin in terms of year-to-date inflows. That being said, investor inflows into both Bitcoin and Ethereum dwarf anything that's happening with Solana right now.
Regulatory outlook
Of course, there's no way that a Solana ETF is going to be approved if regulators have any doubts over whether Solana might actually be a security. This was the one factor that was hanging over Solana during much of the past year. But at the end of July, the SEC appeared to back down from its earlier stance when it acknowledged that it would no longer be looking into Solana as a potential security. If you're hoping for a Solana ETF, that's exactly what you want to see happen.
Moreover, it's important to keep an eye on what's happening in other financial markets, beyond the borders of the U.S. For example, in August, Brazilian regulators approved a spot Solana ETF. If that performs well in Brazil, then it could make it much easier to approve a U.S. version of the ETF. And, indeed, investment firm VanEck -- one of only two firms that have already submitted a spot Solana ETF application to the SEC -- now says that a Solana ETF is "inevitable." I wouldn't go that far, but it is looking good right now for Solana.
What to look for in 2024
As we saw from the recent market mini-crash in early August, there's still quite a bit of volatility in the crypto market. Any sustained sell-off over the next few months would likely push back the launch date of a Solana ETF, simply due to the lack of investor demand for the product. Moreover, the SEC is unlikely to sign off on much of anything if the crypto market is showing signs of weakness, or if demand dries up for existing crypto ETFs.
CRYPTO: SOL
Key Data Points
So keep your eye on the overall health of the crypto market, as well as investor inflows into the Bitcoin and Ethereum ETFs. If the trend is positive, then I'm much more bullish on a spot Solana ETF launching in early 2025. And if pro-crypto sentiment gains hold in the aftermath of the 2024 presidential election, then I would be even more bullish.
That being said, Solana is a high-risk, high-upside crypto investment. So if you are thinking about investing in Solana, make sure you do your due diligence. Investing in a Solana ETF would help to mitigate some of this risk, but it can't eliminate the risk of holding Solana entirely.
