Author: UkuriaOC, CryptoVizArt, Glassnode; Translated by: Baishui, Golden Finance
summary
Since its cycle low in November 2022, Solana has outperformed both Bitcoin and Ethereum as measured by price appreciation and relative capital inflows.
Continued positive capital inflows resulted in a net liquidity increase of USD 55 billion, providing a significant impetus for price appreciation.
Despite significant profit-taking and distributions, Solana investors have not yet reached the point of unrealized profitability (paper gains), which has historically aligned with long-term macro tops, suggesting further growth through the cycle.
Comparison of SOL, BTC, ETH
Over the past 4 years, Solana has attracted significant interest and attention from investors and market speculators. Initially, the asset experienced tremendous growth during the 2021 bull market but then faced significant challenges following the FTX collapse, leading to severe oversupply.
After plummeting to an astonishing low of $9.64, Solana has realized a significant recovery, achieving an astonishing growth of 2,143% over the past 2 years. Since the FTX incident, this impressive price performance has allowed Solana to outperform Bitcoin and Ethereum in 344 out of 727 trading days, indicating substantial growth and demand for the asset.
The surge in price trends has also attracted a significant amount of new capital into the asset. We can use the relative changes in realized caps of Solana, Bitcoin, and Ethereum as indicators to assess and compare the capital flows entering each network.
Since the low point in December 2022, Solana's capital growth percentage over 389 out of 727 trading days has far exceeded that of Bitcoin and Ethereum, highlighting its significant liquidity growth.
To assess the momentum on the demand side, we can track the capital inflows from new investors, referred to as the 'hot realized cap.' This metric measures the capital held by active accounts over the past 7 days.
When comparing the scale of new capital entering assets between Solana and Ethereum, we can observe that new investor demand for Solana has historically surpassed that of Ethereum for the first time, highlighting its strong demand situation.
Notably, Solana's hot realized cap has risen sharply before the beginning of 2024, marking an upward turning point for the SOL/ETH ratio, with the influx of new capital driving growth.
Exploring SOL capital flows
After determining Solana's outstanding performance relative to other major assets, we will now examine the scale and composition of Solana's capital flows.
By evaluating the net realized profit/loss metric, we can visualize the daily changes in capital flows on the Solana chain. When this metric is positive, it represents net capital creation (profits from currency trading); when the metric is negative, it represents net capital destruction (losses from currency trading).
We have observed that since early September 2023, Solana has maintained positive net capital inflows, with only minor capital outflows during this period. The sustained influx of liquidity has helped stimulate economic growth and price appreciation, achieving an astonishing peak of $776 million in new capital inflows daily.
We can utilize the coin age segmentation of the realized profit metric to assess which subgroups contribute the most to selling pressure. Here, we calculate the cumulative profit-taking volume since January 2 based on coin age.
$3.1 billion in 24 hours
$13.7 billion from 1 day to 1 week
$14 billion from 1 week to 1 month
$8.5 billion from 1 month to 3 months
$15.7 billion from 6 months to 12 months
$8.2 billion from 1 year to 2 years
$8.2 billion from 2 years to 3 years
$3.5 billion from 3 years to 5 years
It is worth noting that tokens aged 1 day to 1 week, 1 week to 1 month, and 6 months to 12 months are significant contributors to selling pressure, with each category recording substantial profits. Together, they account for 51.6% of realized profits, showing a balanced distribution of market influence. This emphasizes the notion that Solana, as an asset, is seen as an investment opportunity for all types of investors.
During the same period, substantial capital inflows allowed Solana to accumulate over $55 billion in dollar liquidity, increasing the realized cap from $22 billion to an astonishing $77 billion.
Is the SOL market overheated?
In the previous section, we assessed the significant profit-taking and supply distribution, making the evaluation of market overheating cautious.
To this end, we can utilize the MVRV ratio to define pricing ranges for assessing extreme deviations of investor profitability relative to long-term averages. Historically, breaking above one standard deviation aligns with the formation of long-term macro tops.
Currently, the SOL price is consolidating between the mean and +0.5 standard deviation range. This indicates that the market is relatively hot, but it also suggests that there may still be further room for movement before profits held by ordinary investors reach the extreme range of +1σ, triggering a series of profit-taking and distribution.
Summary
With the release of new segmentation metrics, we are able to analyze investor behavior during the dynamic market period of Solana assets for the first time, providing important insights into the mechanisms of capital creation and destruction.
The rapid recovery of Solana and the subsequent price increase are remarkable, and it has successfully raised substantial funds from both institutional and retail investors.
