Franklin Templeton Files for Solana ETF Approval – Is SOL Price Surge Ahead?

On Friday last week, the Solana community went nuts upon hearing great news – Franklin Templeton submitted a filing to the SEC to ask for approval for a Solana ETF, a spot exchange-traded fund based on Solana (SOL). If approval is granted, this could be a game-changing event for Solana. In this case, SOL would follow in the footsteps of Bitcoin and Ethereum spot ETFs which were approved by the regulator in January and July 2024. Aside from it, other large fund managers have also filed for Solana ETFs – Grayscale, Bitwise, VanEck, Canary, and 21Shares.

This move to launch a Solana ETF is important also because it signifies a growing interest of financial institutions for crypto assets besides Bitcoin and Ethereum. It also indicates SOL’s growing importance as a potential Ethereum killer with its large throughput, cheap transactions, and high speed transactions on the network.

Understanding exchange-traded funds (ETFs)

ETFs are investment tools which enable investors to gain access to an asset without having to hold it directly. When it comes to conventional markets, exchange-traded funds play a vital role in democratizing access to various markets, allowing both retail investors and financial institutions to acquire commodities, stocks. Now, they can also use ETFs to gain exposure to digital assets.

Unlike a futures ETF, which plays on the future price of an asset and relies on derivative contracts, a spot ETF tracks the spot price of an asset and it holds the underlying asset. In this case, it is Solana. This means that for every SOL ETF share bought by an investor, the issuer must buy and store an equivalent amount of SOL. When these ETFs begin to acquire cryptocurrencies for their funds, they increase buying pressure on this crypto. So far, there are two spot ETFs trading in the market – spot Bitcoin and Ethereum ETFs.

Bitcoin and Ethereum ETFs already launched

The first spot ETF powered by crypto was launched in January 2024 after almost a year of await from leading fund managers. Back then, BlackRock, Fidelity, Ark Invest, Bitwise, and others got approval from the SEC to launch spot Bitcoin ETFs. This marked a turning point in the crypto industry. Those funds began to actively accumulate Bitcoin to back their ETF shares. Billions of dollars rushed into Bitcoin as the funds began to scoop up roughly 10x BTC minted by miners every day. While this aggressive accumulation began to create a demand shock for Bitcoin, the halving that took place at the end of April pushed Bitcoin towards a supply shock. Bitcoin price gained significant momentum once first the ETFs launched, and then the halving took place.

The approval of the Bitcoin ETF paved way for Ethereum – the Securities and Exchange Commission gave the green light to spot Ethereum ETF at the end of July 2024. The success of these two ETFs gave funds an idea not to stop there. The crypto community began speculating, which altcoin would be chosen next as a basis for an ETF. Many named XRP, SOL, even the memecoin DOGE.

Filings submitted for SOL, XRP, LTC, and DOGE ETFs

Grayscale, another prominent player in the cryptocurrency space, has been expanding its crypto ETF offerings quite actively recently. This veteran crypto firm has submitted filings for spot ETFs powered by two top-ten cryptocurrencies – XRP and Dogecoin, responding to a growing market appetite for regulated crypto investment products. The US SEC has acknowledged those filings which made both coins soar in price.

Meanwhile, in Brazil, crypto exchange Hashdex has launched the first ever XRP spot ETF, indicating an increasing demand for institutional crypto products outside the US too. The product received an approval from Brazil’s Securities and Exchange Commission (CVM) and it holds XRP coins directly to back up the ETF shares.

As you can see, investors are beginning to look beyond Bitcoin and Ethereum, seeking digital assets with strong tech fundamentals and powerful utility. Aside from SOL, XRP and DOGE, filings have been made for ETFs powered by LTC, HBAR, and DOT.

Potential benefits for SOL from ETF launch

Solana has gain a position of a leading blockchain platform known thanks to its high throughput and cheap transaction fees. Unlike Bitcoin’s proof-of-work consensus protocol or Ethereum’s recent transition to proof-of-stake, Solana leverages a unique mechanism called proof-of-history. It allows for processing transactions at a high speed, often surpassing 65,000 transactions per one second. This high level of scalability has attracted a lot of DeFi app developers, creators of non-fungible tokens (NFTs), and use cases for enterprises.

Should it gain regulatory approval from the SEC, Franklin Templeton’s Solana ETF could give SOL price and adoption a significant boost. This ETF would enable institutional investors to gain direct exposure to Solana, which would lead to a massive increase in demand for SOL. Just as spot Bitcoin ETFs attracted billions of USD into Bitcoin, and continue to do so now, the release of a SOL ETF could have the same effect on SOL. This means the asset’s price is likely to increase. Besides, ETFs ensure that large amounts of underlying assets are locked away for a significant time period, which would partly reduce market volatility.

Aside from potential price boost, an approved Solana ETF would add legitimacy to this blockchain for traditional investors. Recently, financial institution’s attraction to Solana has been growing steadily. E.g., giants, like Visa and Shopify already using Solana for payments and settlements.

Another benefit from a Solana ETF approval would definitely be a higher interest for developers and enterprises to build on this network and greater usage would definitely drive a higher demand for SOL. And this, in turn, would contribute to further network expansion.

Another important outcome of a potential Solana ETF approval is a broader market effect it would have. As Wall Street companies adopt more and more crypto assets as basis for ETFs, the lines between conventional finance and digital assets start to blur. Those investors who previously hesitated to enter the crypto space over concerns regarding security or regulatory uncertainty, will have a legally verified tool to invest in the new asset class. This could have an overall positive impact on the crypto market, accelerating the adoption of crypto as a new mainstream asset class.

However, there is no guaranteed approval for Franklin Templeton’s filing. The history has known precedents when the approval of Bitcoin spot ETFs was delayed by months before the positive outcome. While the SEC considers Bitcoin and Ethereum to be commodities and regulates them as commodities, it looks quite suspiciously at altcoins, such as Solana. Still, if Franklin Templeton’s ETF filing receives the green light (most likely, though, all the SOL ETFs will be approved together), other asset managers may follow in its footsteps, filing for ETFs based on other popular crypto assets.