On June 28, Galaxy Digital, a crypto-focused financial services firm led by Mike Novogratz, published an analysis of VanEck’s recent filing for a spot Solana (SOL) exchange-traded fund (ETF) in the United States. According to Galaxy Digital’s blog post, VanEck filed an S-1 with the Securities and Exchange Commission (SEC) to launch an exchange-traded commodity-based trust product designed to track the price of SOL by holding the underlying cryptocurrency.

Galaxy Digital notes that VanEck’s filing is currently light on operational details, with no designation of custodian, administrator, cash custodian, authorized participants, or sponsor fee, though they point out these can be added in future amendments. The research team at Galaxy Digital highlights that the filing specifically states the trust will not stake its assets.

In their analysis, Galaxy Digital draws attention to several interesting risk disclosures in VanEck’s S-1. The firm points out that VanEck disclosed the concentrated ownership of Solana, stating that 100 wallets control 33% of the SOL in circulation as of November 29, 2023. Galaxy Digital also mentions that VanEck’s filing includes a disclosure that shareholders may not receive the benefits of airdrops or forked assets, and another stating that the exit of validators could increase the risk of network attack.

Galaxy Digital’s research team observes that while VanEck has filed the S-1, they had not yet filed a 19b-4 at the time of writing, meaning there is no official “clock” for when the SEC would need to make a final determination on approval or denial. However, Galaxy Digital cites Bloomberg’s James Seyffart, who suggests that if VanEck files their 19b-4 imminently, the final date for SEC approval or denial would be around March 15, 2025, based on standard procedures.

In their analysis of the potential outcome, Galaxy Digital expresses skepticism about the approval chances for this ETF application. The firm points out that the SEC is currently alleging in its case against Coinbase that Solana is an unregistered security. Galaxy Digital suggests that, absent a substantial change in posture from the SEC, it is likely that this application will be rejected.

Galaxy Digital outlines what they see as the established precedent for SEC approval of spot-crypto exchange-traded products (ETPs). According to their analysis, the process typically involves: 1) launching regulated futures, 2) approving ETPs that hold those futures, 3) approving Canadian spot-ETPs (though Galaxy Digital notes it’s unclear if this is an actual consideration by the SEC), and then 4) approving spot-based U.S. ETPs.

The research team at Galaxy Digital recalls that the SEC’s primary justification for denying spot Bitcoin ETP applications for years was the lack of a “regulated market of sufficient size with surveillance sharing agreements.” They explain how this hurdle was eventually overcome for Bitcoin, leading to the approval of spot Bitcoin ETPs in January 2024, and how Ethereum followed a similar path.

However, Galaxy Digital emphasizes that the absence of SOL futures, coupled with the SEC’s legal stance that Solana is an unregistered security, makes it very unlikely that such an application would be approved absent a major change in regulatory posture or legislation. The firm does note the potential impact of the FIT21 Act, which passed the U.S. House in May, as it provides clarity on which assets should be considered commodities vs. securities.

In conclusion, Galaxy Digital acknowledges VanEck’s history of early filings, noting they were the fourth to file for a Bitcoin ETP and the first for a spot Ethereum ETP. The firm speculates that VanEck might be betting on the outcome of the upcoming election with this early Solana ETF filing.