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Here are some brief views on Solana from me, mainly discussing why I believe Solana may underperform compared to other assets in December (I believe this trend has already started but will continue).
I opened a short position at around ~$235-240, considering this to be the last excellent asymmetric opportunity this year. However, it should be noted that I also hold short positions in other assets (such as Bitcoin, because the gap between Saylor's buy price and the ETF is still widening; I also believe that if Ethereum drops, its downward trend may continue longer).
In summary, most of Solana's performance this year has not really undergone testing, and its main driving forces are depleting (or in the process of depleting).
Why will $SOL perform poorly?
In my view, the real factors driving Solana's performance to become the best-performing asset among scaled assets YTD include the following:
A more active and diverse ecosystem than its competitors, with fast transaction speeds;
The most powerful 'casino' environment, attracting many meme participants willing to use $SOL as a pricing unit;
Mid-year capital inflow—I believe many fund management companies and large liquidity participants were squeezed out due to the lack of enthusiasm for Ethereum ETFs, experiencing a certain degree of 'existential crisis' in future asset allocation.
Today, I believe the above three driving forces have all weakened and are easily susceptible to shocks, with a significant amount of excess bubble still needing to be reduced. Here are my specific reasons:
As the dominant L1 focused on speed and diversity, Solana is facing strong threats from HYPE and Ethereum/Base.
The rise of these threats was unexpected and has not been effectively addressed.
The graph below shows Artemis flow data, you can choose to observe over a 1-week or 1-month time frame. This is the most significant transfer of Solana's capital flow to EVM so far this year, and this transfer is not only reflected in the flow. We can also observe from popular industry cases, such as the meme coin sector of the AI industry—previously considered top projects $GOAT, $FARTCOIN, $ZEREBRO, and $AI16Z saw their valuations halved during this period, while $VIRTUAL and the proxy ecosystem thrived during the same period.
Image Source: Artemis
Furthermore, I believe Solana has not encountered any real competitors in the L1 industry for a long time. Although the HYPE is still in its early stages, its pursuit of democratized ownership and the team's demonstrated strength are short-term factors that cannot be ignored.
Solana has not yet experienced a real supply shock event in 2024.
In contrast, other major assets have faced severe tests, such as Bitcoin's MTGOX incident and regulatory issues in Germany, and Ethereum's ETF launch. Solana has been virtually unaffected in this regard, experiencing only brief volatility during this summer's Jump sell-off, which was quickly overlooked because the larger subsequent pullback of Ethereum diverted attention.
The best-performing period for Solana in the past few months was as a high-beta asset to Bitcoin, capturing most of the capital flow from Ethereum (this trend has gradually dissipated), while attracting attention far beyond that of underperforming and less appealing small altcoins.
In the liquidity fund industry, there should only be two options for GP to realize cash distributions within the 2024 fiscal year:
Distributed based on the percentage of realized gains;
Distributed based on the percentage of unrealized gains, but need to be adjusted based on the previous year's high watermark.
In any case, given Solana's excellent performance last year, I believe liquidity fund management companies will tend to sell off $SOL, possibly for reasons including:
As the best-performing asset of the year, it has gained significant appreciation;
Believing that the previously underperforming parts of the portfolio still have untapped upside potential, it is more worthwhile to capture profits by holding and observing other altcoins that have shown trend strength in recent H1/H4/1 timeframes.
Moreover, this trend is also driven by the heat from the Galaxy auction ($SOL cost basis in the $80-100 range). Fund management companies participating in the auction can profit in the following ways:
For example, selling one-third of the locked supply purchased near historical highs, and then 'recapturing' these tokens during the first unlocking event in March next year to gain a nominal value difference.
The liquidity exit of the $SOL ETF has weakened due to the rise of established tokens and the potential impact of the XRP ETF.
XRP's performance is driven by two main factors:
It is considered the asset most likely to launch ETF products after Ethereum, closely connected with Bitwise;
Rumors about the U.S. cryptocurrency capital gains tax being reduced to 0%.
Considering XRP's credentials (as one of the earliest crypto assets) and the resignation of SEC Chairman Gary Gensler, even if the chances of an XRP ETF launch are on par with or slightly lower than $SOL, it is undeniable that it is diverting market share that originally solely belonged to $SOL.
Complacency
Although this sentiment is difficult to quantify precisely, intuitively I believe that Solana's hubris has reached a bottleneck, contrasting with the situation a few years ago—when Ethereum's superior position allowed $SOL to catch up, which was like an impenetrable moat.
Here are some typical examples
‘Network scalability vs L2’; DRIFT compared to HL, showcasing an attitude of 'no mistakes';
Many people claim ‘no one would want to cross-chain from Solana to Base’, despite obvious counterexamples;
Some users who once firmly supported Ethereum completely surrendered weeks before Ethereum rose by 35%. These people even suddenly made strong predictions that the target price of Ethereum/$SOL would drop to extremely low levels (e.g., 0.027 Ethereum/$SOL).
Summary
In the next 30 days, I believe the marginal buyer's attractiveness to Solana is at its weakest state this year (ETF liquidity is significantly insufficient compared to Ethereum; attention to altcoins is more dispersed than before), while the selling motivation of the marginal seller is simultaneously at its strongest state (taking profits; users who gained huge profits from memes or holding $SOL choose to sell to cash out).
Moreover, as bulls try to push prices up, financing costs remain high, and this increase is entirely driven by leverage, reflected in recent (but brief) historical highs.
Image Source: Artemis
[Disclaimer] The market has risks, and investments should be made cautiously. This article does not constitute investment advice, and users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Invest at your own risk.
This article is authorized for reprint from: (Rhythm Blockbeats)
Original author: The Giver
‘Is the Solana hype bubble coming? Trader reveals 3 reasons: why to short SOL’ This article was first published on ‘Crypto City’
