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 saw tremendous growth during the bull market of 2021, but then faced major challenges after the FTX collapse, leading to severe oversupply.
After plummeting to a stunning low of $9.64, Solana has achieved a significant recovery, realizing 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 on 344 out of 727 trading days, indicating substantial growth and demand for the asset.
The surge in price trends has also attracted a large amount of new capital into the asset. We can leverage the relative changes in the realized caps of Solana, Bitcoin, and Ethereum as indicators to assess and compare the capital flows into each network.
Since the low in December 2022, the percentage of capital growth in Solana across 389 out of 727 trading days has far exceeded that of Bitcoin and Ethereum, highlighting its significant liquidity growth.
To assess the momentum of the demand side, we can track the capital inflow from new investors, known as '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 the asset between Solana and Ethereum, we can observe that the demand from new investors for Solana has historically surpassed that of Ethereum for the first time, highlighting its strong demand condition.
It is noteworthy that Solana's hot realized cap has risen significantly before early 2024, marking an upward turning point for the SOL/ETH ratio, driven by the influx of new capital.
Exploring SOL capital flows
After identifying Solana's excellent performance relative to other major assets, we will now examine the scale and composition of Solana's capital flows.
By assessing the net realized profit/loss indicator, we can visualize the daily changes in capital flow on the Solana chain. When this indicator is positive, it represents net capital creation (profit from currency trading); when the indicator is negative, it represents net capital destruction (loss from currency trading).
We observe that since early September 2023, Solana has maintained positive net capital inflow, with only slight capital outflows during this period. The sustained influx of liquidity has contributed to stimulating economic growth and price appreciation, achieving an astonishing peak of $776 million in new capital inflows daily.
We can utilize the coin age breakdown of the realized profit indicator to assess which subgroups contribute the most to selling pressure. Here, we calculate the cumulative profit-taking amount since January 2 by coin age.
24 hours: $3.1 billion
1 day-1 week: $13.7 billion
1 week-1 month: $14 billion
1 month-3 months: $8.5 billion
6 months-12 months: $15.7 billion
1 year to 2 years: $8.2 billion
2 years to 3 years: $8.2 billion
3 years to 5 years: $3.5 billion
It is noteworthy that tokens aged 1 day-1 week, 1 week-1 month, and 6 months-12 months are significant contributors to selling pressure, with each token recording considerable profits. They collectively 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 by all types of investors.
During the same period, a significant influx of capital allowed Solana to accumulate over $55 billion in USD 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, thus becoming cautious in evaluating the degree of market overheating.
To this end, we can utilize the MVRV ratio to define pricing ranges to assess extreme deviations of investor profitability relative to long-term averages. Historically, breaking above 1 standard deviation has been consistent with forming long-term macro tops.
Currently, the SOL price is consolidating between the average value and +0.5 standard deviation range. This indicates that the market is relatively hot, but it also suggests that there may still be room for further runs before the profits held by ordinary investors reach the extreme range of +1σ, potentially triggering a series of profit-taking and allocation.
Summary
With the release of new sub-indicators, we are able to analyze investor behavior during the dynamic market of Solana assets for the first time, providing important information on the mechanisms of capital creation and destruction.
Solana's rapid recovery and subsequent price surge are remarkable, and it has successfully raised substantial funds from institutional and retail investors.
