Why is it difficult to wait for the SOL ETF? Because it may not be profitable. Last week, Cathie Wood’s Ark Funds decided to withdraw the application for an ETH ETF.
The Ark BTC ETF ranks 4th (with a market share of 6%, with the top 3 being BlackRock, Grayscale, and Fidelity), but it is speculated to be “not very profitable.” This is mainly because the fees for BTC ETFs are relatively low compared to traditional ETFs, with many ranging from 0.19% to 0.25%. ETFs are also engaged in a “fee competition.”
By a simple estimate, with the current size of the Ark BTC ETF, it can earn approximately $7 million in management fees per year, which means the corresponding costs are also of the same magnitude. Therefore, if the Ark BTC ETF is just hovering around the breakeven point, promoting the ETH ETF could potentially result in a loss for Ark. So even for Ark, they can only reluctantly give up on the ETH ETF.
Simply from a business perspective, for a lower market cap mainstream coin like SOL, which has a market cap of 5% compared to BTC, in order to recover the annual $7 million cost, an ETF would need to manage at least 20 million SOL.
Currently, the leading cryptocurrency ETF, BlackRock, only manages 1.5% of the total BTC in circulation, while 20 million SOL would account for 4.5% of SOL’s circulating supply.
In addition, considering the following points:
(1) SOL is naturally more difficult to raise funds for compared to BTC, which has no yield. SOL can generate approximately 8% on-chain yield, but ETFs prohibit including staking functions. Holding SOL ETF would mean naturally losing out on the 8% yield of on-chain SOL, while BTC only incurs a 0.2% management fee loss.
Taking Grayscale as an example, the peak number of GBTC is 600,000, but SOL’s peak number is only 450,000, which is significantly lower in proportion to BTC.
(2) SOL has a circulating supply of 460 million, which may actually be lower than this figure, as those in the industry understand.
A lower circulating market cap, combined with the requirement to withstand high interest rates and regulatory pressures, while achieving larger positions, makes it difficult for these institutions to make money.
From a business perspective, who would have the motivation to promote a deal that doesn’t make money?