Original author: The Giver
Original text translated by: Ismay, BlockBeats
Editor's note: This article conducts an in-depth analysis of Solana's recent performance, exploring the potential challenges it may face from various angles, including supply events, competitive pressure, and complacency, while predicting future market trends. The author reveals potential concerns regarding Solana's capital flows, ecological competition, and investor behavior through data and market phenomena, while also presenting the changing trend of marginal buying and selling forces in the market.
The following is the original content:
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, and I believe this is the last great asymmetrical opportunity of the year. However, I should note that I also hold short positions in other assets (such as Bitcoin, as Saylor's buying price continues to widen the gap with ETFs; and I believe that if Ethereum drops, its downward trend may continue longer).
In summary, much of Solana's performance this year has yet to truly be tested, and its main driving force is running out (or is in the process of running out).
Why will SOL perform poorly?
In my view, the true factors that have driven Solana's performance to be the best among scaled assets this year include the following points:
1. A more active and diverse ecosystem compared to competitors, with fast transaction speeds;
2. The strongest 'casino' environment has attracted many meme participants willing to use SOL as a pricing unit;
3. Mid-year inflows - 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 all weakened significantly and are vulnerable to shocks, with a large amount of excess bubble needing to be reduced. Here are my specific reasons:
As a leading L1 focused on speed and diversity, Solana is facing strong threats from HYPE and ETH/Base.
The rise of these threats is unexpected and has not been effectively addressed.
The chart 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 reflected not only in the flow. We can also observe from cases in popular sectors, such as the meme coin sector in AI - previously considered top projects like GOAT, FARTCOIN, ZEREBRO, and AI16Z, which have all seen their valuations cut in half during this period, while VIRTUAL and the proxy ecosystem have thrived during the same period.
Additionally, I believe Solana has not faced a real competitor in the L1 space for a long time. Although HYPE is still in its early stages, its pursuit of democratized ownership and the demonstrated strength of the team cannot be ignored in the short term.
Solana has not experienced a true supply shock event in 2024.
In contrast, other major assets have faced severe tests, such as the MTGOX incident for Bitcoin and regulatory issues in Germany, as well as the launch of ETFs for Ethereum. Solana has been hardly affected in this regard, only experiencing brief fluctuations during the Jump sell-off this summer, which were quickly overlooked as subsequent larger corrections in ETH diverted attention.
The best period for Solana in the past few months has been as a high-beta asset to Bitcoin, capturing most of the fund flows from Ethereum (this trend has gradually faded), while attracting attention far exceeding that of underperforming, unappealing small altcoins.
In the liquidity fund sector, there should only be two options for GPs to achieve cash distribution within the 2024 fiscal year:
1. Distributing based on the percentage of realized gains;
2. Distributing based on the percentage of unrealized gains, but requiring recapture adjustments based on the previous year's high water mark.
In any case, given Solana's excellent performance last year, I believe liquidity fund managers will tend to sell SOL, potentially for the following reasons:
a) As the best performing asset of the year, it has gained a significant increase;
b) Believing that previously underperforming parts of the portfolio still have untapped upside potential, it is more worthwhile to capture gains by holding and observing other altcoins that show trend strength in H1/H4/1 time frames.
Furthermore, this trend is also driven by the heat of Galaxy auctions (SOL cost benchmark at $80-100). Fund managers participating in auctions can profit in the following ways:
For example, selling one-third of the locked supply purchased near historical highs, then 'recapturing' these tokens during the first unlocking event in March next year, thereby obtaining a nominal value difference.
The liquidity exit of the SOL ETF is weakened by the rise of established tokens and the potential impact of the XRP ETF.
XRP's performance is driven by two main factors:
a) It is considered the asset most likely to launch ETF products after ETH, closely linked with Bitwise;
b) 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 belonged entirely to SOL.
Complacency
Although this sentiment is difficult to quantify precisely, intuitively I believe that Solana's arrogant confidence has reached a bottleneck, contrasting with the situation a few years ago when ETH's superior position allowed SOL to catch up, a position that resembled an impenetrable moat.
Here are some typical examples.
1. 'Network expansion vs L2'; DRIFT compared to HL shows a 'no mistakes' attitude;
2. Many claim 'no one would want to bridge from Solana to Base', despite obvious counterexamples;
3. Some users who were once staunch supporters of ETH completely surrendered weeks before ETH rose by 35%, suddenly making strong predictions that the target price of ETHSOL would drop to extremely low levels (e.g., 0.027 ETHSOL).
Summary
In the next 30 days, I believe the marginal buyers' attraction to Solana is at its weakest state this year (ETF liquidity is significantly lacking compared to ETH; the attention on altcoins is more dispersed than ever), while the marginal sellers' motivation to sell is at its strongest state (profit-taking; users who made significant gains through meme or holding SOL choose to liquidate to preserve value).
Furthermore, as bulls attempt to drive prices up, financing costs remain high, and this increase is entirely driven by leverage, as reflected in a recent (but brief) historical high point breakthrough.
"Original link"
