The debut of a new investment vehicle on Wednesday suggests a new direction in the digital asset mania by providing investors with exposure to a lesser-known cryptocurrency through conventional brokerage accounts.
According to some analysts, this trend may lead to a surge in exchange-traded funds, or ETFs, that are linked to smaller digital assets. However, investors might also want to proceed with a good dosage of prudence.
The ETF, which is also known as SSK SSK or REX-Osprey Solana + Staking ETF, makes direct investments in Solana (SOLUSD), the sixth-largest cryptocurrency in the world by market capitalization. It is the first ETF in the United States to invest directly in Solana, a blockchain-based cryptocurrency that is generally regarded as one of Ethereum’s most formidable rivals. It began trading on the Cboe BZX Exchange on Wednesday.
Given that it allows U.S. investors to access the cryptocurrency without having to physically hold the token, this might be a significant move for financial players looking to mainstream Solana.
According to Greg King, the founder and CEO of REX Financial and Osprey Funds, SSK’s initial clients will likely be retail, with a gradual growth to institutional investors and registered investment advisors, as he told MarketWatch. This implies that people, not organizations, would bear the majority of the responsibility for any early achievements or failures.
The introduction follows last year’s introduction of a new class of exchange-traded funds (ETFs) that invest in ether (ETHUSD) and bitcoin (BTCUSD). The goal of cryptocurrency bulls has been to make digital assets a cog in the financial markets, as well as accessible for investors to access.
However, the institutional players that created last year’s batch of cryptocurrency ETFs, BlackRock (BLK) and Fidelity, are larger than REX Financial. Because the new vehicle will be linked to lesser cryptocurrencies that might find it difficult to create significant demand, analysts have warned that it might not attract much investor interest.
In an interview, Louis LaValle, co-founder of cryptocurrency investment firm Frontier Investments, stated, “It’s always hard to tell, but I think that it’ll set a precedent…then you’re just going to have a bunch of small ETFs out in the market that aren’t generating enough revenue long term.” “All those ETF providers are just going to shut those ETFs down,” LaValle stated, if such ETFs do not see adequate demand in a year or two.
King responded by citing a post on X by senior ETF analyst Eric Balchunas, who stated that as of 11:44 a.m. Eastern on Wednesday, SSK’s trading volume had already surpassed $20 million, putting it in the top 1% of new launches.
According to FactSet data, SSK ended Wednesday’s first trading day at $25.85, up 42 cents, or 1.5%. Solana increased 4.2% to $153.81, about 48% from its January 19 record high of $294.43. Bitcoin fell roughly 2.4% from its peak of $111,986 on May 22 and rose 3.9% to $109,657.
Trump administration that is pro-crypto
By supporting the creation of a bitcoin reserve, the Trump administration has adopted a more accommodative stance toward the cryptocurrency sector. Along with his wife Melania, President Donald Trump recently introduced his own namesake meme currency.
The new Solana-based ETF’s entry into the market has been attributed in part to the change in the regulatory environment.
In 2024, the Biden administration’s Securities and Exchange Commission authorized exchange-traded funds (ETFs) that held bitcoin and ether but disapproved of Solana-based ETFs due to worries about market manipulation and a lack of investor protections. By market capitalization, Bitcoin and Ether are now the biggest cryptocurrencies in the world and have so far received the greatest support from institutional investors.
Roxanna Islam, head of sector and industry research at index provider VettaFi, stated that the regulatory environment has generally gotten more lenient and welcoming of smaller cryptocurrency options outside of bitcoin and ether.
Islam stated that before year’s end, she anticipates the approval of other ETFs that invest in lesser cryptocurrencies including Litecoins, Cardano, and XRP. Islam stated, “They belong to the same group as Solana.”
According to a filing on Tuesday, the SEC also authorized Grayscale’s Digital Large Cap Fund GDLC’s conversion into an exchange-traded fund this week. This was the first time the regulator had authorized an ETF that makes investments in a variety of cryptocurrency assets outside of bitcoin and ether. The majority of the fund’s assets were concentrated in the first two assets, even if it also invests in bitcoin, ether, Solana, XRP (XRPUSD), and Cardano (ADAUSD).
It’s not a Solana play.
Notably, the Rex-Osprey ETF is not the same as the bitcoin and ether ETFs that were introduced by financial giants BlackRock, Fidelity, and others last year.
First of all, according to Islam, SSK is not a “pure-play” Solana ETF. According to the ETF’s prospectus, SSK allocates at least 40% of its assets to other Solana ETFs, most of which are issued outside of the U.S., while the remaining portion is predominantly invested in Solana, in contrast to the bitcoin and ether ETFs, which invest 100% directly in their respective cryptocurrencies.
Islam stated that as the underlying asset is Solana and not a foreign security, it is unlikely that the foreign exposure will increase the ETF’s risk. The ETF’s prospectus states that the fund will also try to invest in the USD share class. Islam went on to say that there shouldn’t be much currency danger.
Another goal of the fund is to stake its Solana holdings, which entails locking up the tokens to protect the Solana blockchain, earning payments, and then distributing those benefits to investors. Data from multiple staking service providers and a statement from SSK co-issuers REX Financial and Osprey Funds predicted that Staking Solana would yield an annual return of around 7.3%.
The first cryptocurrency exchange-traded fund (ETF) on the market to permit staking was SSK. Although staking is supported by the Ethereum blockchain as well, ETFs do not stake their holdings because of prior SEC regulatory concerns. Staking rewards provide investors with passive income, which may increase possible returns. Staked tokens, which are typically locked up, have come with hazards, nevertheless, such as the possibility of losses due to criminal activity or unstable networks.
According to Alex Thorn, head of firmwide research at cryptocurrency investment bank Galaxy Digital, there might be “good reasons” for investors to hold out until additional Solana-based ETFs that likewise aim to earn a staking dividend are released. The SEC is still considering the applications of nine additional prospective issuers, including Fidelity, Franklin Templeton, VanEck, and others, who have applied to establish Solana ETFs. Large financial institution-backed exchange-traded funds (ETFs) are preferred by certain investors due to their solid track records and increased trustworthiness.
According to Thorn, SSK’s management costs are also much higher than those of the most of bitcoin and ether ETFs and might even surpass those of the majority of other proposed Solana ETFs if they are approved. With an income-tax charge of 0.65% and a management fee of 0.75%, SSK’s total yearly operating expenses come to 1.4%. The majority of bitcoin ETFs, in contrast, have management costs of 0.25% or less. However, the management charge for the Grayscale bitcoin trust ETF GBTC might reach 1.5%.
In light of the 1.5% management fee charged by the Grayscale Bitcoin Trust ETF and the fact that many non-US Solana exchange-traded products retain certain staking rewards for issuers, Kings stated that “we think SSK is a fair deal for our investors.”
Unlike the majority of spot bitcoin and ether ETFs, which are regulated by the Securities Act of 1933, SSK is organized differently, in part because it was filed under the Securities Act of 1940, according to Islam. The SEC’s choice to approve SSK before other planned Solana ETFs may indicate that the agency favors the former’s structure when it comes to ETFs that permit staking, albeit it is difficult to determine which path is simpler, according to Islam.
Under the 1933 statute, applications were submitted by more possible Solana ETF issuers. Both acts regulate securities; the 1933 act governs the offering and selling of securities, while the 1940 act governs the composition and activities of investment corporations.
According to Islam, SSK’s investment in other Solana ETFs also adds to its greater expenses, and ETFs governed by the 1940 statute often pay more taxes than those governed by the 1933 act.
According to Islam, the SSK fund may have the first-mover advantage in the competition if other spot Solana ETFs are permitted, but it may also suffer from increased fees.
The demand in question
Given that ether ETFs have attracted far less interest than their bitcoin counterparts, investors also questioned how much demand Solana ETFs—or other smaller crypto ETFs—might attract generally.
According to Dow Jones Market Data, as of Tuesday, Bitcoin ETFs, which were introduced in January 2024, managed $131.6 billion in total assets, while ether ETFs, which were introduced in July 2024, handled $9.9 billion. Bitcoin ETFs have received $38.6 billion in total inflows since July 23, 2024, when ether ETFs were first introduced, compared to just $4.2 billion for their ether counterparts.
“The market capitalization of Bitcoin is six times that of Ether. However, compared to ether ETF flows, bitcoin ETF flows have been more than six times larger,” stated Thorn of Galaxy.
LaValle attributed this in part to the fact that ether’s investing use case was “not as well played out” as bitcoin’s. While ethereum and Solana are mostly viewed as blockchains that power smart contracts—self-executing computer programs that do away with middlemen—proponents of bitcoin have praised the cryptocurrency’s potential to become a store of value.
