Opinion: Why is the SOL ETF so hard to wait for?

Original author: 0xTodd, Ebunker co-founder

Editor's note: On June 27, according to the SEC's official website, VanEck submitted an application for Solana Trust. VanEck Solana Trust is an ETF, the first Solana ETF applied for in the United States. After the Bitcoin ETF and Ethereum ETF were approved this year, people have been discussing the next crypto ETF, and most people are optimistic about the SOL ETF. Ebunker co-founder 0xTodd has always been pessimistic about the SOL ETF. In his latest tweet, he briefly discussed his personal views as follows:

I am pessimistic, mainly because:

1. ETF fees are too low
2. $SOL market value is also low
3. The number of institutions/retail investors willing to hold SOL naked is small (Staked SOL APR is as high as 8%, while ETF is -0.2%).

The product of the three is probably not enough to cover the fees of these ETF issuers.

If everything goes smoothly, you can go for it, but once you encounter great resistance later, you will most likely withdraw.

After all, there is no motivation to push forward if you don’t make money.

There is a metaphor that is not very vivid, now it is similar to-after the college entrance examination, you are ready to repeat the year, but it does not prevent you from filling in Tsinghua University and Peking University as your first choice.

0xTodd gave a more detailed explanation of why he is pessimistic about the passing of Solana ETF in early June. BlockBeats reproduced the full text as follows:

Why is it so hard to wait for SOL ETF? Because it may not make money. Last week, Cathie Wood's Ark Fund decided to withdraw its application for ETH ETF.

Ark BTC ETF ranks fourth (with a market share of 6%, the top 3 are BlackRock, Grayscale and Fidelity), but according to market speculation, it is "not very profitable".

The main reason is that the fee rate of BTC ETF is relatively low compared with traditional ETFs, many of which are in the range of 0.19-0.25%, and ETFs are also engaged in "fee rate competition".

A simple estimate shows that with the current scale of Ark BTC ETF, it can earn about 7 million US dollars in management fees a year, so the corresponding costs should be of the same order of magnitude. Therefore, if Ark BTC ETF is still hovering near the profit line, then for Ark, pushing ETH ETF may become a loss-making business. So even Ark can only reluctantly give up ETH ETF.

From a purely business perspective, mainstream coins with lower market capitalization, such as $SOL, have a market capitalization of 5% of $BTC. In order to recover the annual cost of 7 million US dollars, an ETF must manage at least 20 million SOL.

Currently, BlackRock, the leading crypto ETF, only manages 1.5% of the BTC in the entire network, while 20 million SOL means 4.5% of the $SOL paper circulation.

In addition, consider:

(1) SOL is naturally more difficult to raise than BTC, which has no interest. SOL can earn about 8% on the chain, but ETFs are prohibited from including staking functions. Holding SOL ETF means that it will naturally underperform SOL on the chain by 8%, while Bitcoin only underperforms by 0.2% management fees.

Take Grayscale as an example. The peak of GBTC was 600,000, while the peak of SOL was only 450,000, which is much lower than BTC.

(2) The paper circulation of SOL is 460 million, and the actual circulation may be much lower than this. Everyone knows this.

The lower circulation market value requires a larger position to be achieved while bearing high interest rates and regulatory pressure. Therefore, if SOL’s current market value and circulation are taken into account, it is probably difficult for these institutions to make money.

In business, who has the motivation to promote a business that does not make money?

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