Solana, Cardano, and other alternative cryptocurrencies face slim chances of being approved as spot exchange-traded funds (ETFs) in the United States, and might find it even harder to attract investors if they do. Katalin Tischhauser, head of investment research at Sygnum Bank, aligns with other experts in expressing skepticism that altcoins can follow Ethereum (ETH) and Bitcoin (BTC) as spot ETFs in the U.S.
The primary challenge lies in the lack of trading venues that the Securities and Exchange Commission (SEC) deems acceptable for market surveillance. The SEC’s mandate is to protect against market abuse, fraud, and manipulation. To fulfill this duty, it relies on regulated market venues like the Chicago Mercantile Exchange (CME) to ensure that trading practices are fair, transparent, and free from manipulation. “The availability of CME futures for Bitcoin and Ethereum was a workaround,” Tischhauser explained. The SEC currently views crypto exchanges as “unregulated securities exchanges.” If crypto exchanges such as Coinbase become accepted by the SEC as surveillance markets, it could pave the way for more crypto ETFs.
However, even if these ETFs are approved, Tischhauser doubts there will be significant demand beyond Bitcoin and Ethereum. “We do not think ETFs beyond Bitcoin and Ethereum would meet much demand. Ethereum’s name recognition is only half of Bitcoin’s, and other tokens (such as Solana) have minimal name recognition outside the crypto market.” Since their launch, spot Bitcoin ETFs have generated $17.7 billion in inflows, indicating clear demand. On the other hand, spot Ether ETFs have had a slower start, with outflows dominating the first week of trading, largely due to the exodus from the Grayscale Ethereum Trust. Tischhauser suggested the market landscape could be very different for cryptocurrencies outside of Bitcoin and Ether.
The high premium on Grayscale’s Solana Trust (GSOL) indicates some demand, but its assets under management (AUM) are significantly smaller compared to its Bitcoin and Ethereum trusts, suggesting limited overall interest. The GSOL fund currently holds $78.6 million in AUM, only about 1.2% of its Ethereum Trust (ETHE), which still boasts $6.3 billion in AUM despite ongoing outflows. This lack of interest in altcoin ETFs was echoed by BlackRock’s investment chief for ETF and index investments, Samara Cohen, and the asset manager’s head of digital assets, Robert Mitchnick. Cohen noted that there is unlikely to be a spot ETF for altcoins like Solana soon, while Mitchnick said, “I don’t think we’re gonna see a long list of crypto ETFs.”
Contrarily, VanEck’s head of digital assets research, Matthew Sigel, presents a more optimistic perspective. In a recent interview, Sigel stated, “We disagree with the notion that Bitcoin and Ethereum will be the only ETFs. The market in Europe already boasts a variety of crypto ETPs, including single coin and basket options.” He added that VanEck aims to lead this innovation in the U.S., having filed for a Solana ETF with the SEC on June 27.
Cumulative flows for spot ETH ETFs have recently flipped positive again, with Grayscale’s ETHE fund seeing its smallest outflow so far, with $78 million leaving the product, bringing the total aggregate inflow to $28.5 million on the day. This trend could indicate a growing interest in Ether ETFs, although it remains to be seen whether this will extend to other altcoins.
The road ahead for altcoin ETFs in the U.S. is fraught with regulatory and market challenges. While the SEC’s stringent requirements for market surveillance remain a significant barrier, the limited demand for altcoin ETFs further complicates their potential success. As the crypto market evolves, the dynamics surrounding ETF approvals and investor interest will continue to shape the landscape, leaving industry watchers to ponder the future of altcoins in the ETF space.
