Solana’s Speed and Memecoin Edge Make the Case for a Stellar ETF

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As a seasoned researcher who has witnessed the evolution of the digital asset market since its inception, I find myself both captivated and intrigued by the surge in Exchange Traded Products (ETPs) tracking digital assets. The record-breaking figures and the rapid growth of these products are nothing short of astonishing.

By October 2024, the value of Exchange-Traded Products (ETPs) linked to digital assets hit an all-time high of $100.5 billion, marking a 13.2% growth from the preceding month. The overall market value of digital assets climbed nearly 9%, reaching $2.54 trillion in October. The managed assets for Bitcoin ETPs surged to $83.2 billion, while Ethereum ETPs experienced a 1.4% rise to reach $10.3 billion.

ETPs’ AUM has risen by 102.9% year-on-year, outpacing the underlying cryptocurrency growth. Spot Bitcoin ETFs, a type of ETP with stricter regulations, made the most notable contribution to this result. They have accumulated net inflows of more than $24 billion since launching in January 2024.

The perpetual appeal of exchange-traded products

Spot Bitcoin ETFs purport improved liquidity and price efficiency for investors, as well as more convenient access to the flagship crypto compared to other means of trading in spot markets. Bitcoin holdings are also an opportunity to diversify portfolios due to Bitcoin’s spectacular rise, having recently broken past $100,000.

The costs associated with the Grayscale Bitcoin Trust and Bitcoin futures ETFs can vary from 0.95% up to 2%, plus additional expenses related to renewing expired contracts. Contrastingly, spot Bitcoin ETFs initially charged between 0.2-0.5%. Grayscale’s Bitcoin ETF had the highest fee at 1.5%, but it remains lower than non-ETP alternatives. After overcoming numerous regulatory challenges, the SEC granted approval for Grayscale to transform its Bitcoin trust into an ETF in 2021. Grayscale is a significant player that has developed a trust holding ether valued at more than $9 billion since its inception. This trust was converted into an ether ETF by July 2024.

The next evolution of crypto investment products

It appears that Solana is poised to be the next big thing in specialized investment options. Companies like Grayscale, Bitwise, VanEck, Canary Capital, and 21shares have expressed interest in launching Solana Spot ETFs. However, it’s unlikely these will debut this year, with expectations possibly pushing towards 2025. The US Securities and Exchange Commission has reportedly denied applications from at least two applicants, and its current chair, Gary Gensler – known for his skepticism towards cryptocurrency – is expected to resign following the inauguration of Donald Trump.

According to Iliya Kalchev, Nexo Dispatch Analyst, Grayscale’s recent application to transform its Solana Trust into an Exchange Traded Fund (ETF) may indicate a significant step forward in the development of crypto investment products. With the cryptocurrency market abuzz with predictions about which asset could be next to gain ETF status, Solana stands out as a particularly compelling choice. Given Solana’s growing popularity, it seems well-suited for such a transformation. Renowned for its fast and cost-effective transactions, and boasting a thriving ecosystem, Solana has cultivated a large, enthusiastic user base that is actively promoting real-world adoption.

What’s going to be different once Solana ETFs launch?

As an analyst, I find it noteworthy that Bitcoin-focused Exchange Traded Funds (ETFs) collectively manage over $49 billion, outpacing Ether ETFs, which currently stand at approximately $7.3 billion. This disparity is a testament to Bitcoin’s early presence in the ETF market, its wider acceptance among institutions, and its role as a perceived “store of value,” contrasting with Ethereum. However, it’s important to note that Ethereum ETFs are picking up pace, particularly after the anticipated 2024 launch of spot Ethereum ETFs. These ETFs will enable direct tracking of ether’s price fluctuations. Notable Ethereum ETFs include the Grayscale Ethereum Trust, boasting over $4.86 billion in assets under management (AUM).

As a crypto investor, I find myself pondering over the potential impact of Solana ETFs once they receive SEC approval. Given that Solana’s price touched an unprecedented peak of $262 on November 22, and experts suggest this is merely the start, I can’t help but feel optimistic about its future. In fact, the rapid ascent to this record high occurred mere three years after it surpassed its previous one. This impressive growth trajectory has led UK bank Standard Chartered to forecast that Solana could approach $700 by the end of 2025. The anticipation is palpable!

Positive forecasts are set amidst favorable large-scale economic indicators. In the middle of November, Solana processed transactions valued at more than $40 billion, following a weekly high of $17.5 billion achieved in March.

It’s not only high speed and efficiency fueling the surge. Soaring interest in memecoins should definitely not be underestimated. The number of active Solana users has risen by over 1,500% since January, with new daily addresses increasing elevenfold over the same period. Beyond riding the coattails of crypto ETFs’ historical successes, a Solana ETF could bring additional momentum as the go-to blockchain for memecoin projects, as Mr. Kalchev is quick to point out:

As a crypto investor, I’ve noticed that Solana stands out from other blockchains due to its unique and thriving niche: the memecoin craze. Unlike many other platforms where memecoins are often considered mere novelties, Solana has created an atmosphere that fosters the growth of these fun tokens. This trend not only boosts network activity but has also elevated memecoins to a distinct asset class, making them the second hottest phenomenon in crypto after Bitcoin itself.

The question practically begs itself:

Is it possible that meme coins are driving Solana into discussions about ETFs? That’s a plausible theory. If Grayscale’s application gets approved, it would create an easy way for both institutional and individual investors to invest in Solana’s expanding network, thereby gaining access to the broader crypto market as well. This market cycle is more inclusive than any we’ve experienced before.

A Solana ETF would gauge market sentiment and blockchain innovation

A Solana ETF would function as a dual indicator, capturing both investor sentiment towards cryptocurrencies overall and the level of interest in Solana as a significant player in the blockchain innovation scene. From the frenzy surrounding memecoins to its broader attractiveness as a rapid, scalable blockchain, Solana represents the essence of the current market trend,” concludes Mr. Kalchev.

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2024-12-08 13:21