Ark withdraws ETH ETF application, the difficulty of encryption ETF profitability emerges.

Recently, Ark Fund decided to withdraw its Ethereum ETF application, attracting widespread attention from the market. The reason behind this decision may be related to profit expectations.

Currently, the Ark Bitcoin ETF ranks fourth in the market, with a market share of 6%. However, despite its high ranking, market analysis suggests that the product may not be very profitable. This is mainly due to the generally low fee rates for cryptocurrency ETFs, most of which are between 0.19-0.25%, significantly lower than traditional ETFs.

Based on the current scale of Ark's Bitcoin ETF, the annual management fee income is approximately $7 million. Considering the operating costs, the actual profit may be quite limited. In this case, launching an Ethereum ETF may become a loss-making business for Ark, which also explains why they ultimately abandoned this plan.

From a business perspective, it is more difficult for mainstream cryptocurrencies with smaller market capitalizations, such as Solana (SOL), to achieve substantial returns through ETFs. The market cap of SOL is only about 5% of Bitcoin's. To reach an annual return of $7 million, a SOL ETF would need to manage at least 20 million SOL, which accounts for 4.5% of the theoretical circulating supply of SOL. In contrast, the largest cryptocurrency ETF provider currently manages only 1.5% of the total Bitcoin supply.

In addition, SOL faces additional challenges:

1. SOL can earn approximately an 8% yield on-chain, while ETF products do not allow for staking features. This means that investors holding SOL ETFs will naturally earn 8% less than those directly holding SOL. In comparison, Bitcoin ETF investors only lose 0.2% in management fees.

2. The actual circulation of SOL may be lower than the official data of 460 million coins. The lower market capitalization, combined with high interest rates and regulatory pressure, makes it difficult for institutions to obtain significant returns through SOL ETFs.

In summary, under the current market conditions, the SOL ETF may struggle to bring adequate profits to financial institutions. From a business perspective, if a venture cannot be profitable, few institutions will actively promote its development. This could be the main reason we find it difficult to see the launch of the SOL ETF in the short term.