Key takeaways
- A Solana exchange-traded fund (ETF) is an investment fund that allows you to invest in SOL through the stock market without buying the actual cryptocurrency itself.
- Solana ETFs aim to provide a more accessible and regulated way for institutional and retail investors to invest in Solana.
- Brazil has approved two Solana ETFs, but efforts to launch the products in the United States by VanEck and 21Shares face delays due to regulatory challenges.
- Canada and Switzerland also offer Solana-based investment products, with Canada’s 3iQ filing for a Solana ETF on the Toronto Stock Exchange.
An ETF is an investment that tracks the price of an asset, such as a cryptocurrency, or a set of assets, such as multiple stocks. ETFs allow you to benefit from a price movement without directly investing in the underlying asset or assets, making investing more accessible.
Think of an ETF that tracks multiple assets as a bowl of various candies. Within the bowl (ETF) are various candy brands (assets). It’s a convenient way to hold multiple types of candies and diversify without individually searching for each box of candy.
However, when an ETF focuses solely on one asset, similar to a Bitcoin ETF, it’s like a bowl filled with just your favorite candy brand. You’re investing in that single flavor based on your preference rather than mixing it with others.
Such an offering is beneficial when it comes to cryptocurrencies, as there’s no need to set up a crypto wallet or manage your public and private keys. An ETF will also be available on platforms you’re already on if you’re a regular trader, increasing accessibility even more. Because an ETF trades on a regulated stock exchange, it ensures you’re not investing in a fake asset.
Types of ETFs
- Commodity ETFs: ETFs that invest in gold, oil or other precious metals or commodities used to hedge the market.
- Equity ETFs: ETFs that track the performance of stock indexes like the S&P 500. These can hone in on specific industries or be more general.
- Bond ETFs: ETFs that track the performance of a set of bonds, such as corporate or municipal bonds.
- Crypto ETFs: ETFs that provide exposure to cryptocurrencies. Some ETFs track a bundle of different assets, while others focus on a specific asset.
Many other types of ETFs exist, but these are well-known examples.
What is a Solana ETF?
A Solana ETF would allow you to gain exposure to the Solana (SOL) cryptocurrency without buying and holding it, circumventing the need to get and manage a crypto wallet or interact with the Solana blockchain.
If a Solana cryptocurrency ETF were approved in the US, it would be the most accessible way for you to invest in the Solana ecosystem.
While Solana ETFs intend to track the cryptocurrency’s price, they’re not a direct investment, which can result in ETFs portraying slightly inaccurate pricing.
How Solana ETFs work
To invest in a Solana ETF, you need to create a brokerage account on a platform like eTrade and link a payment method. From there, navigate to the platform’s crypto ETF section and invest in an ETF similar to how you’d invest in a stock. However, when you invest in a crypto ETF, you’ll also pay management fees. ETFs have portfolio managers who charge for their work, and the amount they charge depends on how much they need to work (the level of fund management required).
These additional fees ensure you don’t have to manage and secure the SOL yourself, which can be worth the trade-off between cost and convenience.
Can you invest in a Solana ETF?
There are two types of ETFs in the crypto world: spot ETFs and futures ETFs. Spot Solana ETFs track SOL’s real-time price and hold the asset directly, whereas a Solana futures ETF does not. Instead, the futures ETF provides exposure to SOL’s price movements over time, allowing you to speculate on prospective price moves.
Spot Bitcoin ETFs and Ether ETFs have been approved in the US, leaving many wondering if other crypto ETFs will follow.
Investment manager VanEck was the first US company to file for one on June 27, 2024, which the company hopes to list on the Cboe BZX Exchange. Crypto fund manager 21Shares also filed for a spot SOL ETF shortly after.
However, US companies aren’t the only ones pursuing spot Solana ETFs. The Securities and Exchange Commission of Brazil (CVM) approved the world’s first spot Solana ETF on Aug. 7, 2024.
The CME CF Solana dollar reference rates are official rates that show the price of Solana in US dollars. They are calculated by CF Benchmarks, which collects and averages data from various exchanges where Solana is traded. These rates provide a consistent and trusted way to measure Solana’s price, which the ETF will use to track its value.
Additionally, Brazil has approved a second Solana-based ETF, which will be offered by Hashdex, a Brazil-based asset manager with $963 million in assets under management.
Did you know? VanEck was one of the first companies to push for spot Bitcoin ETFs of all kinds. The company filed for a spot Bitcoin ETF in 2018, and even though the filing failed, VanEck eventually launched a Bitcoin futures ETF in 2021. VanEck is also leading the charge for a spot Solana ETF in the US.
So, what are the risks involved in investing in a Solana ETF? Cryptocurrencies are volatile assets, meaning the ETF’s value could rise or fall sharply based on market price fluctuations.
Like with other cryptocurrencies, SOL’s price can be highly reactive to positive or negative news. For example, following the assassination attempt on former US President Donald Trump, Bitcoin’s price shot up as expectations of his victory in the US presidential election soared because Trump is seen as more crypto-friendly than his opponent, Vice President Kamala Harris
Why consider a Solana ETF? Solana ETF vs. Solana token
The Solana ecosystem is far more complex than Bitcoin’s, offering capabilities closer to those of Ethereum. Investing in SOL provides exposure to the entire Solana ecosystem, not just the cryptocurrency:
- The Solana ecosystem comprises decentralized applications, non-fungible token marketplaces and other projects. Solana-based projects require you to own SOL to interact with them, meaning the cryptocurrency has utility within the ecosystem beyond just being a speculative asset.
- Investing in a Solana ETF means you don’t have to learn how to set up a crypto wallet or navigate Web3 platforms, which can be a steep learning curve. Learning how to invest in a Solana ETF is a good way to gain exposure to the asset.
Regulatory landscape for Solana ETFs
While spot crypto ETFs only became accessible to the public in 2024, Bitcoin futures ETFs have been available since 2021, and Ethereum futures ETFs launched in 2023. With this in mind, it’s possible the market will see a Solana futures ETF before a spot ETF is approved.
While there is optimism around spot Solana ETFs being approved by the US SEC—following the launch of spot Bitcoin and Ether ETFs—Bloomberg analyst Eric Balchunas highlights the challenges spot Solana ETFs could face before getting the nod, noting that the SEC hardly considered the SOL ETF filings. This lack of acknowledgment caused financial entities to pull back, which may result in significantly reworked applications.
Did you know? Futures ETFs differ from spot ETFs in a few key ways. A futures ETF is an agreement to buy or sell an asset at a specific price on a particular date in the future. Futures allow investors to speculate on an asset’s price but do not directly track it like a spot ETF does.
Alternative ways to invest in SOL
There are other ways to invest in SOL without buying the token itself. The Grayscale Solana Trust (GSOL) is one such method, and it is one of the first securities to track the price of SOL.
GSOL is for accredited investors only, meaning any prospective investor must pass a particular wealth tier. This makes GSOL inaccessible to everyday traders, which is part of the reason that a spot Solana ETF could significantly impact the market.
The future of Solana ETFs
According to Balchunas, the SEC should make a final decision on a spot Solana ETF around March 2025. A potential Trump presidency, considering his recent support for the crypto industry, may affect this decision.
“Yes, there’s a near-zero chance in 2024, and if Harris wins, there’s probably a near-zero chance in 2025, too. The only hope, IMO, is if Trump wins,” Balchunas stated on X.
Did you know? The 2024 US election involves crypto more than any other election. Both parties have openly discussed their stances on crypto, and voters are viewing it as a significant swing issue.
Although a Solana ETF could potentially be approved before the election, it’s unlikely to happen. Spot Bitcoin ETFs took years to get the green light from the SEC. Given the complexity of Solana, with its staking and alternative consensus mechanisms, the approval process could be even lengthier.
Ophelia Snyder, the co-founder and president of the 21.co asset management firm, stated, “It’s unlikely that the approval of ETH will result in a large wave of approvals.”
VanEck’s head of digital assets research, Matthew Sigel, believes the SEC should regulate SOL as a commodity, stating that it “functions similarly to other digital commodities such as Bitcoin and Ether.”
Written by Max Moeller