Solana ETF Launch Sparks Short-lived Rally Amid Institutional Hesitance

The crypto market recently saw ripples as Solana’s native token, SOL, surged by 7% on Monday. This excitement was triggered by the announcement of the first Solana exchange-traded fund (ETF), which boasts staking capabilities. However, as initial enthusiasm waned, institutional demand appeared muted, leading many analysts to reconsider whether this development could indeed act as a catalyst for SOL’s price to climb above the crucial $200 mark.

A Deeper Look at the Solana ETF Dynamics

SOL initially rallied to highs around $161 but later adjusted to $157, marking a modest 4% gain from the previous day. This ETF, launched in partnership between REX Shares and Osprey Funds, employs an innovative structure that allows it to bypass the conventional US Securities and Exchange Commission approval processes. This approach, often used by energy partnerships, facilitates a quicker rollout compared to standard Bitcoin and Ethereum spot ETFs.

However, the tax implications of the REX-Osprey SOL + Staking ETF differ from typical cryptocurrency ETFs, creating challenges in terms of tax efficiency. Dividend income is taxed both at corporate and individual investor levels, potentially deterring some investors.

Despite the initial wave of optimism, traders soon recalibrated their expectations when they realized that similar products could emerge for nearly every altcoin. In stark contrast, Grayscale’s Solana Trust has managed only about $75 million in assets after trading for more than two years. This figure pales when juxtaposed against the Grayscale Ethereum Trust, which boasted $10 billion in assets one month prior to the launch of the spot Ethereum ETF.

Challenges for SOL: Unlocks and Selling Pressure

Even if Solana experiences a first-mover advantage, this positivity may be curtailed by impending SOL staking unlocks estimated at around $585 million over the next two months. Moreover, notable decentralized applications (DApps) within the Solana ecosystem have actively liquidated their SOL holdings. For instance, the token launch platform Pump transferred over $404 million worth of SOL to exchanges just last year, reflecting a trend that could impede SOL’s recovery.

As SOL’s performance has fluctuated, it has tracked closely with competitors like ETH and BNB over the past 30 days, despite bullish ETF news. This correlation indicates a broader trend in the crypto space rather than SOL’s unique strengths.

The current trading landscape shows SOL’s annualized funding rate has not exceeded the neutral threshold of 10%, even after a solid 12.5% rise over the past four days. With the price still sitting 47% below its all-time high of $295, and network activity showing no signs of a recovery—Solana has seen network revenue plummet by over 90% since January—the outlook remains uncertain.

Additionally, the recent selection of an Ethereum layer-2 network by Robinhood for tokenized stock trading further diminishes Solana’s appeal as the platform of choice for high-output DApps. Meanwhile, Coinbase’s partnership with Shopify to implement on-chain payments on the Base network signals a competitive landscape that could stifle Solana’s growth.

The Solana ETF launch may have sparked interest in SOL, yet the path ahead seems fraught with challenges. With decreased institutional interest, growing competition, and the looming threat of staking unlocks, predicting a major rally to $200 appears increasingly doubtful.