Original author: The Giver
Reprint: Daisy, Mars Finance
Here are some brief thoughts on Solana, 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, believing this is the last excellent asymmetric opportunity of the year. However, I should note that I also hold short positions in other assets (such as Bitcoin, as Saylor's purchase price continues to widen the gap with the ETF; and I also believe that if Ethereum falls, its downtrend may last longer).
In summary, much of Solana's performance this year has yet to truly face scrutiny, and its main driving force is depleting (or in the process of depleting).
Why will SOL perform poorly?
In my view, the real factors driving Solana's performance this year to be the best-performing asset among scaled assets YTD include the following points:
1. An ecosystem that is more active and diversified than competitors, with fast trading speeds;
2. The strongest 'casino' environment, attracting many meme participants willing to use SOL as the unit of account;
3. Mid-year capital inflow - I believe many fund managers and large liquidity participants have been squeezed out due to the lack of ETH ETF hype, experiencing some degree of 'existential crisis' in future asset allocation.
Today, I believe the three major driving forces mentioned above have weakened and are easily impacted, with a significant amount of surplus bubble still needing to be trimmed. Here are my specific reasons:
As a leading L1 focused on speed and diversity, Solana faces strong threats from hype and ETH/Base.
The rise of these threats is unexpected and has yet to be effectively addressed.
The following chart shows Artemis traffic data; you can choose to observe over a time frame of 1 week or 1 month. 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 traffic. We can also observe from popular sector cases, such as the meme coin segment in the AI field - previously regarded as top projects like GOAT, FARTCOIN, ZEREBRO, and AI16Z, all of which have seen their valuations halved during this period, while VIRTUAL and the proxy ecosystem have thrived during the same period.
Additionally, I believe Solana has not faced any real competitors in the L1 space for a long time. Although the hype is still in its early stages, its pursuit of democratized ownership and the strength exhibited by the team cannot be ignored in the short term.
Solana has yet to experience a real supply shock event in 2024.
In contrast, other major assets have undergone severe tests, such as Bitcoin's MTGOX incident and German regulatory issues, as well as Ethereum's ETF launch. Solana, on the other hand, has been almost unaffected, experiencing only a brief fluctuation during Jump's sell-off this summer, which was quickly overlooked as the subsequent larger pullback of ETH diverted attention.
The best-performing period for Solana in the past few months was as a high-beta asset in relation to Bitcoin, capturing most of the capital flow from Ethereum (this trend has gradually dissipated), while attracting attention far beyond mediocre and unattractive small altcoins.
In the field of liquid funds, there should only be two options for GP to achieve cash distribution within the 2024 fiscal year:
1. Distribute based on the percentage of realized gains;
2. Distribute based on the percentage of unrealized gains, but adjustments must be made based on the previous year's high water mark.
In any case, given Solana's outstanding performance last year, I believe liquid fund managers will tend to sell SOL for various reasons, including:
a) As the best-performing asset of the year, it has seen significant gains;
b) Believing that previously underperforming parts of the portfolio still possess 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 time frames.
Moreover, this trend is also driven by the hype surrounding Galaxy auctions (SOL cost benchmark at $80-100). Fund managers 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, thus gaining a price difference in nominal value.
The exit liquidity of the SOL ETF has weakened due to the rise of established tokens and the potential impact of the XRP ETF.
The performance of XRP is driven by two main factors:
a) It is considered the asset most likely to launch ETF products after ETH, closely associated with Bitwise;
b) Rumors about the reduction of U.S. cryptocurrency capital gains tax to 0%.
Considering XRP's credentials (as one of the earliest cryptocurrency assets) and the resignation of SEC Chairman Gary Gensler, even if the chances of an XRP ETF's launch are on par with or slightly lower than SOL, it is undeniable that it is siphoning off market share that originally belonged entirely to SOL.
Complacency
Although this sentiment is difficult to quantify accurately, intuitively I believe Solana's arrogance has reached a bottleneck, contrasting with the situation a few years ago - at that time, ETH's superior position allowed SOL to catch up, and this position resembled an impenetrable moat.
Here are some typical examples
1. 'Network expansion vs L2'; DRIFT compared to HL, demonstrating a 'no mistakes' attitude;
2. Many claim 'no one would want to bridge from Solana to Base', despite clear counterexamples;
3. Some users who previously strongly supported ETH completely surrendered weeks before ETH rose 35%, and these individuals even suddenly predicted that the target price for ETHSOL would drop to extremely low levels (e.g., 0.027 ETHSOL).
Summary
In the next 30 days, I believe the marginal buyer's attraction to Solana is at its weakest state this year (ETF liquidity is significantly lower compared to ETH; the attention on altcoins is more dispersed than before), while the marginal seller's motivation to sell is at its strongest (profit-taking; users who made huge gains through memes or holding SOL choose to sell to cash out).
Additionally, as bulls attempt to push prices up, financing costs remain high, and this rise is entirely driven by leverage, as reflected in the recent (but brief) breakout at historical highs.
