Viewpoint: Why is it difficult to wait for the SOL ETF?
After the approval of Bitcoin ETF and Ethereum ETF this year, discussions about the next crypto ETF have arisen, with most people optimistic about the SOL ETF. However, Ebunker co-founder 0xTodd has always held a pessimistic view on the SOL ETF.Original authors: 0xTodd, Co-founder of Ebunker
I hold a pessimistic view, mainly because:
- ETF fees are too low
- The market cap of $SOL is also low
- The number of institutions/retail investors willing to hold SOL naked is small (Staked SOL APR is as high as 8%, while the ETF is -0.2%).
The product of these three factors is probably not enough to cover the fees of these ETF issuers. If everything goes smoothly, it can be launched, but once there is significant resistance later, it is highly likely to be withdrawn. After all, without profit, there is no motivation to push forward. A metaphor that may not be very vivid is that it is now similar to------preparing to retake the college entrance examination after the first attempt, but it does not prevent one from filling in Tsinghua or Peking University as the first choice.
Regarding why I hold a relatively pessimistic view on the approval of Solana ETF, 0xTodd provided a more detailed explanation in early June, and the full text is reproduced by Rhythm BlockBeats as follows:
Why is it hard to wait for the SOL ETF? Because it may not be profitable. Last week, "Wooden Sister" (Cathie Wood) decided to withdraw the ETH ETF application from Ark Invest.
Ark's BTC ETF ranks 4th (market share 6%, with the top 3 being BlackRock, Grayscale, and Fidelity), but according to market speculation, it is "not very profitable."
The main reason is that the fee for the BTC ETF is relatively low compared to traditional ETFs, many in the range of 0.19-0.25%, and ETFs are also engaged in a "fee competition."
A simple estimate shows that with Ark's current BTC ETF scale, it can earn about $7 million in management fees per year, so the corresponding cost should be in the same order of magnitude. Therefore, if Ark's BTC ETF is still hovering around the profit line, then for Ark, strongly pushing the ETH ETF may turn into a losing business. So even Ark has to painfully give up the ETH ETF.
From a purely business perspective, mainstream coins with lower market caps, such as $SOL, have a market cap of 5% of $BTC. To recover the annual cost of $7 million, an ETF would need to manage at least 20 million SOL.
Currently, the top crypto ETF, BlackRock, only manages 1.5% of the total BTC, while 20 million SOL would mean accounting for 4.5% of the paper circulation of $SOL.
Additionally, considering:
(1) SOL is inherently more difficult to raise funds than non-yielding BTC. The on-chain yield for SOL can reach about 8%, but ETFs are prohibited from including staking functions. Holding a SOL ETF means naturally underperforming the on-chain SOL by 8%, while Bitcoin only underperforms by 0.2% in management fees.
Taking Grayscale as an example, G BTC peaked at 600,000, while SOL's peak was only 450,000, a significantly lower ratio than BTC.
(2) The paper circulation of SOL is 460 million, but the actual amount may be much lower, which is understood by those who know.
A lower circulating market cap, however, requires achieving larger holdings while bearing high interest and regulatory pressure. Therefore, given SOL's current market cap and circulation, it is probably difficult for these institutions to make a profit.
From a business perspective, who has the motivation to push a business that does not make money?
