SEC to Deny Solana Spot ETF Applications and Halt New Crypto ETF Approvals

The US SEC is expected to reject applications for Solana-based spot ETFs and has reportedly paused approvals for all new crypto-related ETFs. 

Meanwhile, the decision creates further uncertainty for asset managers aiming to offer regulated digital asset investment products.

🚨SCOOP: I’ve confirmed that the @SECGov has notified at least two of the five prospective issuers that it will reject their 19b4 filings for the $SOL spot ETFs.

The consensus here, I’m told, is that the SEC won’t entertain any new #crypto ETFs under the current administration.

— Eleanor Terrett (@EleanorTerrett) December 6, 2024

SEC Flags Regulatory Concerns Around Solana ETFs

Several leading financial firms, including Grayscale Investments, VanEck, and Bitwise, have submitted applications for Solana spot ETFs. Grayscale, which currently oversees $134 million in Solana assets through its trust product, proposed converting the trust into a spot ETF under the ticker GSOL to increase access for traditional investors.

The SEC’s position on Solana ETFs appears tied to concerns about the cryptocurrency’s regulatory classification. Solana (SOL) has previously been categorized as a potential security in legal actions brought by the SEC against major exchanges such as Binance and Coinbase. While the SEC recently decided not to pursue further classification of Solana in its lawsuit against Binance, uncertainty about its status continues to influence decision-making.

In earlier decisions, the SEC cited concerns about market manipulation and inadequate investor safeguards in rejecting Solana ETF applications, including proposals from Cboe BZX. This cautious approach has been a hallmark of SEC Chair Gary Gensler’s tenure.

Asset Managers’ Push for Solana ETFs Faces Challenges

The SEC’s expected rejection impacts several firms working to expand crypto ETF offerings beyond Bitcoin and Ethereum. Grayscale’s attempt to convert its Solana Trust into an ETF was part of broader efforts to provide investors with direct exposure to Solana through a regulated fund structure. Unlike trust products, ETFs typically trade at prices closely aligned with their underlying assets, offering more transparent valuation.

VanEck, 21Shares, Bitwise, and Canary Capital are among the other firms seeking to launch Solana-focused ETFs. These applications highlight growing interest from institutional players in diversifying their digital asset portfolios. However, the SEC’s position presents a significant hurdle, slowing progress on new product approvals.

In addition to Solana, the SEC’s current pause on crypto ETF approvals affects applications for other digital assets. Firms like WisdomTree and Bitwise have also filed for XRP ETFs, signaling that broader crypto investment products may also face delays.

Leadership Change at the SEC Sparks Speculation

This development comes ahead of an anticipated leadership change at the SEC. Gary Gensler, the current chair, is set to step down next month. Paul Atkins, who has been nominated as Gensler’s successor, is awaiting Senate confirmation.

The incoming leadership could bring changes to the SEC’s approach to crypto regulation. Atkins has previously expressed more business-friendly views, which could influence the commission’s stance on approving digital asset investment products. Until then, asset managers are likely to face continued uncertainty regarding pending applications.

For firms that have invested significant resources in developing crypto ETFs, the SEC’s current position may slow their entry into the market. Many have been seeking approval for single-asset funds as well as broader multi-asset investment vehicles.

Crypto ETF Market Remains in Limbo

The rejection of Solana ETF applications reflects broader challenges for firms looking to introduce crypto-based funds. While the SEC approved Ethereum futures ETFs earlier this year, spot crypto ETFs have faced higher regulatory barriers.

Solana has gained recognition for its scalability and speed, attracting developers and investors alike. Despite its growing adoption, concerns over regulatory compliance and classification have hindered its integration into traditional financial products.

As of press time, Solana was trading at $235.19, with a 24-hour trading volume exceeding $12 billion. The cryptocurrency has seen slight declines over the past week, influenced in part by ongoing regulatory developments.