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Here are some brief views on Solana, mainly discussing the reasons why I believe Solana may underperform compared to other assets in December (I believe this trend has already begun, but will continue).
I opened a short position at around ~$235-240, believing this is the last excellent asymmetric opportunity of the year. However, it should be noted that I also hold short positions in other assets (such as Bitcoin, because the gap between Saylor's purchase price and the ETF is still widening; at the same time, if Ethereum drops, its downtrend may extend longer).
In summary, much of Solana's performance this year has not really been tested, and its main driving forces are depleting (or in the process of depleting).
Why $SOL will underperform?
In my view, the real factors driving Solana to become the best-performing asset in the scaled asset category YTD include the following points:
An ecosystem that is more active and diverse than its competitors, with fast transaction speeds;
The most powerful 'casino' environment, attracting many meme participants willing to use $SOL as a unit of account;
Mid-year capital inflows—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 impacted, with a large amount of excess bubble still needing to be cut down. Here are my specific reasons:
As a leading L1 that emphasizes speed and diversity, Solana faces strong threats from HYPE and Ethereum/Base.
The rise of these threats was unexpected and has not been effectively addressed.
The following chart shows Artemis flow data, where 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 just reflected in the flow. We can also observe from popular industry cases, such as the meme coin sector of the AI industry—previously regarded as top projects like $GOAT, $FARTCOIN, $ZEREBRO, and $AI16Z, all saw their valuations shrink by half during this period, while $VIRTUAL and the proxy ecosystem thrived during the same period.
Image source: Artemis
Moreover, I believe Solana has not faced 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 strength presents an attraction that cannot be ignored in the short term.
Solana has not yet experienced a real supply shock event in 2024
In contrast, other major assets have already undergone severe tests, such as the MTGOX incident with Bitcoin and regulatory issues in Germany, as well as the launch of Ethereum's ETF. Solana, on the other hand, has been hardly affected, experiencing only a brief fluctuation during this year's summer Jump sell-off, which was quickly overlooked as Ethereum's larger subsequent pullback diverted attention.
The best periods for Solana over the past few months were as a high-beta asset to Bitcoin, capturing most of the capital flow from Ethereum (this trend has gradually dissipated), while attracting attention far exceeding that of underperforming, less attractive small altcoins.
In the liquidity fund industry, there should only be two options for GP to realize cash distributions in the 2024 fiscal year:
Distributing by percentage of realized gains;
Distributing by percentage of unrealized gains, but adjustments must be made based on the previous year's high-water mark benchmark.
In any case, given Solana's outstanding performance last year, I believe liquidity fund management companies are inclined to sell $SOL, possibly for the following reasons:
As the best-performing asset of the year, it has gained significant upward momentum;
Believing that the previously underperforming parts of the portfolio still have untapped upside potential, it is more worthwhile to capture profits by holding and observing other altcoins that show trend strength in the H1/H4/1 time frames.
Moreover, this trend is also driven by the hype of Galaxy auctions ($SOL cost basis at $80-100). Fund management companies participating in the auctions can profit in the following ways:
For example, selling one-third of the staked supply purchased near historical highs, then 'recapturing' these tokens in the initial unlocking event in March next year, thereby gaining a nominal profit.
The liquidity of the $SOL ETF exit 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 an ETF product after Ethereum, closely associated with Bitwise;
Rumors about the capital gains tax on cryptocurrencies in the U.S. being reduced to 0%.
Considering the credentials of XRP (as one of the earliest crypto assets) and the resignation of SEC Chairman Gary Gensler, it is undeniable that even if the likelihood of an XRP ETF launch is on par with or slightly lower than that of $SOL, it is siphoning off market share that originally belonged entirely to $SOL.
Complacency
Although this sentiment is difficult to quantify precisely, intuitively, I believe that Solana's arrogance has reached a bottleneck, contrasting with the situation a few years ago when Ethereum's superior position allowed $SOL to catch up, a position that resembled an impregnable moat.
Here are some typical examples
'Network scalability vs L2'; DRIFT compared to HL, showcasing a 'no mistakes' attitude;
Many people claim 'no one would want to bridge from Solana to Base', despite clear counterexamples;
Some users who once firmly supported Ethereum completely surrendered weeks before the 35% rise of Ethereum. These individuals even suddenly predicted strongly that the target price of Ethereum/$SOL would drop to extremely low levels (e.g., 0.027 Ethereum/$SOL).
Summary
In the next 30 days, I believe the marginal buyers' appeal for Solana is at its weakest state this year (ETF liquidity is clearly insufficient compared to Ethereum; the attention on altcoins is more dispersed than ever), while the selling motivation of marginal sellers is simultaneously at its strongest state (profit-taking; users who gained substantial profits through memes or holding $SOL choose to sell to cash out).
Moreover, 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) historical high point breakthrough.
Image source: Artemis
【Disclaimer】The market is risky, and investment should be cautious. 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 accordingly, and take responsibility for your own actions.
This article is reprinted with authorization from: (Rhythm Blockbeats)
Original author: The Giver
'Is the Solana hype bubble coming? Traders reveal 3 main reasons: Why to short SOL' This article was first published in 'Crypto City'
