Why BlackRock is holding back on Solana ETF

While Bitcoin and Ethereum are thriving in the ETF space, BlackRock’s caution could signal a longer wait for other crypto assets.

In the crypto industry, where speculation and hype often outpace reality, the recent remarks from Samara Cohen, chief investment officer for ETF and index investments at BlackRock, offer a sobering perspective.

In a July 29 interview with Bloomberg’s Katie Greifeld and Eric Balchunas, Cohen made it clear that, for now, Bitcoin and Ethereum were the only cryptocurrencies meeting BlackRock’s stringent criteria for exchange-traded funds.

Cohen’s statements came against the backdrop of a crypto market buzzing with excitement and anticipation following the successful launch of Ethereum ETFs on July 23, 2024. 

In the interview, the BlackRock executive stated that despite some outflows from higher-priced ETF products, the demand for direct exposure to Bitcoin and Ethereum was high, with investors looking to those two products for diversification and potential returns.

The launch sent ripples through the market, pushing the weekly trading volume of crypto funds to a staggering $14.8 billion, the highest since May.

Those with their fingers on the crypto industry’s pulse suggest that investors are eager to explore new avenues. 

In that regard, Solana has become a frequent subject of speculation as a potential new entrant in the ETF space. However, Cohen’s remarks pour cold water on these hopes, at least for now.

Bitcoin and Ethereum: the chosen ones

Listening to Cohen, it is clear that practicality and demand are the basis for BlackRock’s decision to concentrate only on BTC and ETH as viable ETF products:

We really look at the investability to see what meets the criteria, what meets the bar to be delivered in an ETF.

It is instructive that she used the word “investability,” a term that encompasses factors such as market depth, regulatory environment, and the ability to track an asset’s price accurately. 

According to Cohen, both Bitcoin and Ethereum not only meet those criteria but also align with what BlackRock is hearing from its clients.

While some may chafe at this conservative approach, it is not without merit. Bitcoin and Ethereum have long established themselves as the big boys of crypto, both in terms of market capitalization and institutional interest.

At the time of this writing, Bitcoin alone was responsible for more than 52% of crypto’s $2.5 trillion value. Often referred to as “digital gold,” the coin has become the standard-bearer for the crypto industry, even being touted by proponents as offering a relatively stable store of value.

On the other hand, Ethereum has carved out a niche as a platform for decentralized applications (dapps) and smart contracts, offering a diverse range of use cases.

Both of these coins have strong infrastructures, including futures contracts on the Chicago Mercantile Exchange, which provide a level of regulatory oversight and market stability lacking in most other digital assets.

The Solana conundrum

The conversation around Solana as a potential ETF candidate has been gaining traction, especially after VanEck and 21Shares filed for a Solana ETF in the U.S. 

Pushing the agenda further, Solana’s proponents have argued that it is a faster and cheaper alternative to Ethereum and boasts impressive scalability and low transaction fees. This has led to a surge in on-chain activity, further fueling the narrative that Solana is the next big thing in crypto.

However, despite its technological advancements and growing market cap — currently just north of $84 billion, according to CoinGecko — Solana still faces significant hurdles.

For one, it lacks CME futures, an issue that would complicate regulatory approval for an ETF based on the cryptocurrency. Without those futures, a Solana ETF market would lack an important mechanism for hedging and price discovery, thus making it difficult for the ETF to function effectively.

Moreover, while Solana has gained attention and praise from entities like Franklin Templeton, which called it an “exciting and major development,” it still lacks the widespread institutional backing that Bitcoin and Ethereum enjoy.

Further, going back to Cohen’s interview, she highlighted a broader issue: the current appetite for crypto ETFs outside Bitcoin and Ethereum is limited.

When asked by Katie Greifeld about the possibility of a Solana ETF, Cohen did not mince her words: “Not in the near term.”

The broader market landscape

Looking at the current state of crypto ETFs, it would not be farfetched to say it reflects a broader trend in the traditional financial markets: a cautious approach to emerging technologies and assets.

Furthermore, while there is undeniable interest in diversifying beyond Bitcoin and Ethereum, there exist substantial regulatory and technical challenges. For instance, the U.S. Securities and Exchange Commission has been particularly stringent in its criteria for approving crypto ETFs, often citing concerns about market manipulation and the lack of investor protections.

Therefore, without clear regulatory guidance, even the most promising crypto assets face an uphill battle in achieving ETF status.

However, the successful launch of Ethereum ETFs has provided a blueprint for future products, but it has also highlighted the complexities involved. 

Even Cohen, in her Bloomberg TV interview, mentioned that BlackRock has yet to include crypto ETFs in its own model portfolios, emphasizing the need for thorough due diligence and risk assessment.  

Interestingly, despite BlackRock’s lack of immediate plans for a Solana ETF, the crypto asset has seen a surge in interest and activity. As crypto.news recently reported, there was a considerable increase in on-chain activity for Solana after VanEck and 21Shares filed for spot Solana ETFs. 

It suggests that while not all institutional investors may be ready to embrace other crypto ETFs, there is a growing grassroots interest in such assets.