Ark withdraws Ethereum ETF application, the profitability problem of encryption ETFs emerges.

Recently, Ark Invest decided to withdraw its Ethereum ETF application, sparking widespread discussion in the market. A simple and practical reason may lie behind this decision: profit issues.

Currently, the Ark Bitcoin ETF occupies the fourth position in the market, holding about 6% market share. However, even so, its profitability does not seem optimistic. This is mainly because the management fee rates for cryptocurrency ETFs are generally low, hovering between 0.19% and 0.25%, with various institutions engaged in fierce rate competition.

Based on the current size of the Ark Bitcoin ETF, the annual management fee income is approximately $7 million. Considering that operating costs may be comparable to this, it means that the product may barely break even. In this case, launching an Ethereum ETF could become a losing business for Ark.

From a business perspective, the situation may be even more severe for smaller market cap mainstream cryptocurrencies, such as Solana (SOL), whose market cap is only about 5% of Bitcoin's. To recover an annual cost of around $7 million, a SOL ETF would need to manage at least 20 million SOL. This figure represents 4.5% of SOL's nominal circulating supply, far exceeding the current largest crypto ETF provider's 1.5% share in the Bitcoin market.

In addition, several key factors need to be considered:

1. SOL can earn about 8% yield on-chain, while the ETF cannot include Staking functionalities. This means that investors holding SOL ETF will naturally lag behind direct SOL holders by 8% in yield, whereas Bitcoin ETF investors only lag by 0.2% in management fees.

2. The actual circulation of SOL may be far lower than its nominal circulation of 460 million. A lower actual circulation means that institutions need to achieve a larger proportion of holdings while facing high returns and regulatory pressure.

3. Compared to Bitcoin, the market size of SOL is smaller. Taking a well-known cryptocurrency trust as an example, its Bitcoin product managed 600,000 Bitcoins at its peak, while the highest management amount for the SOL product was only 450,000, far below the scale of the Bitcoin product.

In summary, considering the current market value and circulation of SOL, it may be difficult for these financial institutions to generate substantial profits. From a business perspective, if a venture cannot be profitable, few institutions will be motivated to promote it. This might be why we may have to wait for some time before seeing an SOL ETF.