“Solana ETFs are likely to be rejected”: Galaxy

Asset management firm Galaxy says applications to launch Solana-based ETFs in the United States are “likely to be rejected.”

Last week, the signatures VanEck and 21Shares filed S-1 forms with the US Securities and Exchange Commission (SEC) to launch financial instruments of that cryptocurrency on the marketThis form is used to register the initial offering of securities and details the fund structure, underlying assets, investment strategy and other essential information for investors and regulators.

In this context, Galaxy explained that VanEck’s presentation is short on operational details because it has not designated the platform that will hold the funds that back that ETF. It also does not clarify who will be “the administrator, the authorized participants or the sponsor fee” although it indicates that “they can be added in future amendments.”

Along those lines, he highlighted that the investment firm’s S-1 form reveals that, as of November 29, 33% of the total SOL in circulation is in the hands of 100 different wallets. Such concentration allows a few entities to carry out market manipulations, if they so wish.

Galaxy also noted that investors would not receive benefits from airdrops, tokens distributed to owners of certain cryptocurrencies or compatible addresses in order to promote a project and increase its activity. Forked assets, which are tokens that are created from a fork or modification of the original Solana network, are also not included. These clarifications could have a negative impact on the ETF’s ability to attract investors, according to the company. Although, it is worth clarifying that the existing bitcoin and ether ETFs also do not indicate that investors will receive these benefits (airdrops and forked coins).

The firm also warned that the departure of validators, who are responsible for verifying transactions and maintaining security, would increase the chances of a potential attack on the network. This situation could expose investors’ funds to greater risk.

The SEC should change its position “in a substantial manner”

As CriptoNoticias reported, VanEck did not file Form 19b-4 with the SEC, so the agency does not have a deadline to respond. James Seyffart, an analyst at the Bloomberg news agency, explained that, after this filing is made, “there are some steps/gaps before the 240-day period begins, but, on average, a standard procedure would set (the final date for SEC approval or rejection) around March 15, 2025.”

However, Galaxy believes that unless the SEC changes its position “in a substantial manner,” these applications are likely to be rejected. The SEC considers SOL to be a security (security) and should be regulated as such. In fact, the president of this entity, Gary Gensler, has expressed on several occasions that “anything that is not bitcoin falls under the control of the SEC.”

Gensler says that the actions of the promoters of cryptocurrencies that emerged after the creation of bitcoin (BTC) are similar to those of businessmen who benefit from the growth of their companies’ shares. This explains why these tokens are considered securities and not goods (commodities), as are BTC and ether (ETH).

Regarding the digital currency of the Ethereum ecosystem, it should be mentioned that the SEC did not make an explicit statement that it is a commodityHowever, it is just days away from approving the launch of ETFs based on this asset. This suggests a certain flexibility regarding its stance on these assets.

It is worth recalling that VanEck’s Head of Digital Asset Research, Matthew Sigel, argued that SOL works the same as BTC and ETH. “It is used to pay transaction fees and services. Like ether on the Ethereum network, SOL can be traded on digital asset platforms or used in peer-to-peer transactions,” he argued.

Solana ETF faces several hurdles

Galaxy’s report mentions the FIT21 Act, which was passed by the US House of Representatives. The law was created to resolve the ongoing dispute between the SEC and the Commodity Futures Trading Commission (CFTC) over the classification of cryptocurrencies. In this regard, Galaxy believes:

“Such clarity could also materially impact or improve the likelihood of ETP (exchange-traded products) approval for underlying digital currencies beyond bitcoin and ether.”

Galaxy, investment company.

Finally, he highlights VanEck’s experience with the presentation of bitcoin and ether ETFs and suggests the possibility that the request for a solana fund is a “bet on the outcome of the elections” in the United States, between Joe Biden and Donald Trump.

In his bid to return to the White House, the Republican candidate has shown himself to be in favour of industry and has even defined himself as a “crypto president”.

Since the campaign began, Trump has vowed to stop the government’s hostility toward digital assets and has targeted Gensler:

“He is very much against it, the Democrats are very much against it. But I am fine with cryptocurrencies. And if you are in favor of them, you better vote for Trump.”

Donald Trump, former President of the United States.

Galaxy’s opinion is in line with that of investment firm GSR, which believes the outcome of the electoral contest could be key to the future of solana ETFs. “While the current legislative and regulatory makeup is unlikely to adopt rules that allow the launch of countless digital asset ETFs, a Trump administration and a liberal SEC Commissioner could do exactly that,” it highlights in its most recent report.