GSR brazenly pumps Solana alongside VanEck and 21Shares
On June 27, purported market-maker GSR published a hyper-bullish report on Solana (SOL), claiming that its price could increase by over 900%. Its analysts’ incredible logic was based on the fact that the price of bitcoin increased 130% because of its spot ETF approval.
Asserting that supposed fact, GSR analysts then extrapolated the impact of what is in their mind a very likely approval of a Solana spot ETF. Indeed, they state it as a foregone conclusion, claiming, “Solana is next, should additional spot digital asset ETFs be permitted in the US.”
Crypto influencers breathlessly retweeted and reblogged GSR’s presumptuous report hundreds of times and since June 27, the price of SOL is up about 5%.
According to GSR, “when” the SEC approves spot Solana ETFs, the only question is not whether the price of SOL will increase — but by how much. GSR calculated three, acclamatory price targets.
- Bearish: +140%
- Baseline: +440%
- Blue sky: +990%
GSR’s bullish sentiment seems to be shared by many pop researchers in crypto, such as RealVision, Delphi Digital, CoinStash, and Galaxy. On June 28, RealVision’s co-founder Raoul Pal personally claimed that 90% of his liquid net worth was in SOL. Delphi predicted an ‘Endless Solana Summer’ throughout 2024, predicting more for Solana than any other major blockchain. Even Mike Novogratz’s Galaxy is Solana’s top validator.
That is all quite fascinating, as the SEC has clearly designated SOL an unregistered security.
SEC says SOL is an unregistered security
In paragraph 370 of a public SEC court filing, commissioners state that Solana Labs’ public dissemination of information since Solana’s initial coin (ICO) offering has led investors to reasonably view ‘SOL as an investment in and expect to profit from Solana Labs’ efforts to grow the Solana protocol, which, in turn, would increase the demand for and value of SOL.’
To be clear, paragraph 362 states that in the opinion of the SEC, SOL “was offered and sold as an investment contract and, therefore, was and is a security.”
That present tense ‘is a security’ is current at least as of June 5, 2023, when the SEC filed its lawsuit. It has no expiration and applies since the ICO of SOL.
Apparently, that SOL is illegal to broker or deal on US secondary markets for public investment is no matter for pop researchers like GSR, Delphi, CoinStash, and RealVision. Nor is it much consideration for hopeful ETF sponsors like 21Shares and VanEck — both of which have published equally bullish research on Solana alongside spot ETF filings.
According to VanEck, “We believe SOL is a commodity.” According to another uninformed lawyer, “There’s nothing preventing the SEC from approving a spot crypto ETF.” Needless to say, people believe many things that are not true.
According to 21 Shares, “We can view the gross market value of Ethereum as the benchmark for the potential value that Solana could capture in the long term.”
GSR goes to great lengths on its website to clarify that it’s not a broker or dealer. It’s a licensed money transmitter in two US territories — Puerto Rico and Washington DC — and five states, namely Delaware, Connecticut, Florida, Maryland, and Oregon.
That’s another way of saying it doesn’t have a money transmitter license in 45 states. Nor is it authorized or regulated by the UK Financial Conduct Authority.
No federally regulated Solana futures
Currently, there are two crypto assets that the SEC permits to wrap in spot ETFs: bitcoin and ether. Spot bitcoin ETFs already trade on US stock exchanges. Spot ether ETFs have most of their major approvals already, and will likely begin trading on US exchanges sometime this summer. Both assets trade under federally regulated futures markets.
However, SOL doesn’t trade under federally regulated futures markets. This could cause delays for a Solana spot ETF because it lacks futures.
Worse, Solana could also face delays due to its SEC designation as an unregistered security. Neither bitcoin nor ether faced this obstacle.
For context, the SEC was famously reluctant to approve a spot ether ETF for years. According to ConsenSys on the basis of a wholly redacted document in its’ possession, a majority of SEC commissioners allegedly believe ether is a security. However, the SEC has never officially declared this to be the case.
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That commissioners had never classified bitcoin nor ether as an unregistered security certainly made it easier to approve their spot ETFs. Solana will not enjoy this privilege.
After a few years of delays, the powerful US Court of Appeals for the District of Columbia Circuit forced the SEC to either approve the spot ether ETFs or explain its rejection in a non-arbitrary and capricious manner. This court ruling forced the SEC’s hand because of uncontested evidence that there’s a 99.9% correlation between spot and CME futures market prices. Ultimately, the SEC relented and approved spot ether ETFs.
GSR waves away Solana’s headwinds
Because ether trades in a federally regulated futures markets with 99.9% correlation to its spot price, the SEC couldn’t claim that manipulation or lack of information-sharing agreements justified its rejection of spot ETFs. That was arbitrary and capricious grounds for rejection, according to the US Court of Appeals for the District of Columbia Circuit.
However, the SEC would easily be able to make those grounds for rejecting Solana spot ETFs. Because SOL has no federally regulated futures market it would not be arbitrary nor capricious to reject spot Solana ETF applications for traditional reasons like spot market price manipulation or lack of information-sharing agreements.
Of course, no one besides the five commissioners knows whether spot Solana ETFs are due for approval anytime soon. Ultimately, they have the discretion to approve or deny applications from entities like 21Shares and VanEck. In any case, they probably won’t be basing their decision on GSR’s research.
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