Solana ETF Begins Trading on Cboe BZX, Marking US Crypto Milestone

The first Solana cryptocurrency ETF, REX-Osprey Solana + Staking ETF (SSK.US), has officially begun trading on the Cboe BZX exchange. This marks a significant milestone as it is the first ETF in the United States to directly invest in Solana, a cryptocurrency that is currently the sixth largest globally and is seen as a strong competitor to Ethereum. Unlike previous ETFs that focused on Bitcoin and Ethereum, SSK brings a relatively smaller cryptocurrency into the mainstream investment platform. This development not only symbolizes the further integration of cryptocurrencies into traditional financial markets but also sparks discussions about the future of smaller cryptocurrency ETFs.

Investors in the United States can now indirectly invest in Solana through SSK without the need to directly hold the cryptocurrency, thereby avoiding the complexities of wallet management and cryptocurrency exchange accounts. The ETF is a joint effort by REX Financial and Osprey Funds. The initial investors are expected to be predominantly retail investors, with a gradual expansion to institutional investors and registered financial advisors.

SSK is not a pure Solana spot ETF. According to the prospectus, approximately 40% of its assets will be invested in other Solana ETFs issued primarily outside the United States, with the remaining funds directly invested in Solana. Additionally, the fund plans to engage in staking operations, locking part of its holdings in the blockchain network to earn rewards, which will be returned to investors. Currently, the annualized staking yield for Solana is around 7.3%. This makes SSK the first cryptocurrency ETF to allow staking, unlike Ethereum spot ETFs that do not include staking due to regulatory considerations.

The structure of SSK differs from previous Bitcoin and Ethereum ETFs, as it is based on the 1940 Securities Act framework, which imposes stricter operational regulations on investment companies, resulting in higher management costs. The management fee for SSK is 0.75%, with an additional 0.65% in tax expenses, totaling 1.4% annually, which is higher than most Bitcoin ETFs that typically charge 0.25% or less. However, compared to the 1.5% fee of the Grayscale Bitcoin Trust ETF and the retention of staking rewards by many overseas Solana products, SSK's fee structure is considered fair.

The launch of SSK is partly due to the current favorable political and regulatory environment. The Trump administration is seen as supportive of cryptocurrencies, having assisted in establishing Bitcoin reserves and launching personal cryptocurrency "meme coins." In 2024, the SEC, under the Biden administration, approved Bitcoin and Ethereum spot ETFs but initially rejected Solana ETFs due to concerns over market manipulation and investor protection. However, regulatory attitudes have since softened, with expectations that ETFs for other mid-sized cryptocurrencies like XRP, Cardano, and Litecoin will be approved this year. Several major financial institutions, including Fidelity, Franklin Templeton, and VanEck, have submitted applications for Solana ETFs, awaiting SEC approval. Some investors may prefer these institutional ETFs due to their long-term reputation, asset management capabilities, and lower fee structures.

Despite SSK's strong debut, there are lingering doubts about the overall demand for Solana and other smaller cryptocurrency ETFs. For instance, since the launch of Bitcoin ETFs in January 2024, their asset size has reached 131.6 billion dollars, while Ethereum ETFs, launched in July, have only attracted 9.9 billion dollars. Bitcoin ETFs have seen a net inflow of 38.6 billion dollars, nearly ten times that of Ethereum ETFs. This disparity is partly due to Bitcoin's clearer "digital gold" positioning, while Ethereum and Solana focus more on supporting "smart contract" platforms, which have a higher learning curve for ordinary investors.

Industry experts note that ETFs like SSK will only be valuable if there are no other convenient and legal channels for investors to gain exposure to these cryptocurrencies. Otherwise, some investors may still choose to purchase these cryptocurrencies directly through exchanges. The launch of the Solana ETF is part of a broader trend where traditional financial institutions are increasingly embracing cryptocurrencies. This shift reflects a strategic move from simply holding cryptocurrencies to packaging and selling them as investment products, providing investors with diversified portfolios and staking benefits. The introduction of the Solana ETF is expected to have a significant impact on the market and the broader ecosystem, attracting substantial capital inflows, enhancing liquidity, and reducing price discrepancies, ultimately driving up the value of Solana and other cryptocurrencies. This development is also expected to lower the entry barrier for traditional investors, as they can now access cryptocurrencies through regulated ETFs without the need for self-custody wallets. This shift towards institutionalization will further stabilize the regulatory framework and enhance the overall security of the ecosystem. However, the launch of the Solana ETF also comes with its own set of challenges and risks. The regulatory environment remains uncertain, and the SEC continues to scrutinize compliance details and fraud risks, which could lead to delays or rejections in the approval process. Additionally, the complexity of single-currency ETF structures and the lack of education and risk disclosure could pose challenges for retail investors. There is also a risk of market bubbles and regulatory backlash if certain cryptocurrencies, such as Dogecoin, are overhyped or misused.