Advisor and crypto advocate explains why four launches happened in short succession and what Solana offers that other cryptocurrencies don’t
Last month saw four ETFs launched from different providers offering a common core strategy: direct exposure to Solana. These four spot Solana ETFs from Purpose Investments, Evolve ETFs, 3iQ, and CI Global Asset management were launched on the same day after the Ontario Securities Commission (OSC) gave regulatory approval for these funds. The decision came after the launch of US ETFs tracking Solana futures, but the Canadian launches were the first spot ETFs tracking this particular cryptocurrency in North America. One advisor and crypto advocate explained some of why we saw these launches all at once and why he thinks the addition of Solana into the existing crypto ETF ecosystem can be beneficial for Canadian advisors and investors.
Michael Zagari, investment advisor & associate portfolio manager at Wellington-Altus Private Wealth, is a longstanding advocate for some cryptocurrency allocations in his clients’ portfolios. He explained some of how Solana differs from other cryptocurrencies, highlighting the underlying technology and speed of transaction that appeals to some investors. He outlined how these ETFs might fit in client portfolios now, even as investor appetites for risk assets like cryptocurrency seems to be abating.
“The due diligence and process required to get these products approved takes between a year and eighteen months,” Zagari explains about the decision to launch these funds now. “Once they have approval, these companies can choose whether to launch or delay, and if the confidence in risk assets wasn’t there, I don’t think the manufacturers would have launched them now. I think there is something to be said about the momentum in crypto and the story behind Solana.”
Solana, Zagari explains, offers a different balance in the ‘blockchain trilemma.’ Blockchains, the technology underpinning cryptocurrencies, are forced to strike a balance between three factors: decentralization, security, and scalability. No blockchain currently exists that maximizes all three factors. Bitcoin, for example, is extremely decentralized and secure, but lacks scalability.
That means the Bitcoin blockchain is less capable of processing rapid micro transactions required for aspects of in-game transactions, content monetization, tipping, crowdfunding, meme coins, and day to day purchases. Solana, conversely, is less decentralized and therefore generally less secure than Bitcoin, but is more scalable and capable of hosting more rapid transactions. Many notable meme coins, including the $Trump coin, are hosted on the Solana blockchain platform. He likens the technology to WhatsApp, which cut out much of the expense and complexity that used to come with texting outside of one country. Solana, he says, is trying to speed and simplify global transactions with fewer payment intermediaries.
Investors and advisors considering these new ETFs may want to frame it as a different technology with a different utility, Zagari says. “What is the technology trying to solve?,” he asks. “Right now the [Solana] technology is trying to solve fast transactions. Look at the number of transactions per second. Visa can process something like 24,000 transactions per second, Bitcoin can only do seven, but Solana can process up to 65,000 transactions per second. It’s faster, but that comes with trade offs.”
One of the risks in Solana, Zagari explains, is that the network can shut down and pause the movement of assets. There have been pauses in the past on the Solana blockchain, he notes, while Bitcoin has never seen a shutdown. Moreover, while Bitcoin has reached a point of widespread adoption, the uptake of Solana is more nascent. There is a risk that if uptake slows or existing users are corrupted, the blockchain could lose some of its functionality.
The risks associated with a newer blockchain, Zagari notes, can be balanced against the diversification benefits of accessing more blockchains. While investment in a Solana ETF might be seen as a ‘bet’ on its underlying technology, advisors can incorporate it into a much more diverse set of cryptocurrency and blockchain strategies now available in securitized packages like ETFs. Zagari contrasts the current ‘menu’ of options with the situation only four years ago when Canadian advisors were limited to a few Bitcoin ETFs and publicly traded securities with crypto exposures. Without endorsing any one specific strategy, he views a widening diversity of options as a broad positive for advisors and investors.
A new set of crypto ETFs with a different technological underpinning may also give some advisors pause, simply by adding to the volume of different strategies they now need to research and understand. Zagari understands why a new strategy might elicit a groan, but emphasizes the fact that the whole securities industry is growing more sophisticated and that keeping ahead of these new developments has become a requirement for modern advisors.
“Advisors have a responsibility to understand these products,” Zagari says. “If they just jump in and learn a bit about this and build a network of people they can ask and have a resource then they’re going to stay relevant. If you want to be in this business for the next 10, 15, 20 years and you haven't jumped into this disruptive, innovative side of the business, you're missing out on a lot.”
