Searching My SOL For Answers
Solana keeps going up. Initially, I was surprised by the unrelenting gains. When the dust settles on Solana's ongoing memecoin mania, is there a fundamental story to fall back on?
The action in the crypto market continues to be highly intriguing. I’d be lying if I said I didn’t expect more of a buyable dip in many of these top assets by now, but the relentlessness of the bulls the last several weeks has been very exciting to say the least. I want to spend my energy in this post on Solana ($SOL-USD) because the price appreciation and network metrics since I last covered it have been impressive.
On November 1st, I dropped “The Pun Is Setting in the West” and made the case for why I closed my long swing position in SOL - not my total holdings. At that time, SOL was highly overbought with a daily RSI at 86, a 12 month high price to fee ratio of over 900x, and a coin price of about $42. Fast forward to today… and the coin price is now well over $100 and the P/F ratio has been cut in half.
WHAAAA?!!! How could this be?
This is impressive and an indication that even after the SOL price has doubled (again) in just two months, the coin’s valuation has actually improved. Obviously, the fees portion of the equation has increased, and that has been largely driven by a surge in daily active users and DEX trading volume:
Solana has been a major beneficiary of two simultaneous catalysts:
the return of memecoin mania
high transaction fees on Ethereum ($ETH-USD)
In the month of December, Solana did $28.1 billion in DEX trading volume. Ethereum’s fee increases in Q4 were a tailwind for Solana. As a primary smart contract network competitor to Ethereum, Solana seized the opportunity and attracted activity as a low-fee alternative. It’s easy to point at the meme coins as the biggest catalyst in the SOL price, but I’m not sure that’s the full picture.
Solana moved over $720 billion in value during the month of December and BONK was a small fraction of that. What I find additionally interesting about this big spike in chain usage is it hasn’t really equated to a big gain in TVL on the chain:
At 14 million TVL measured in the native asset, Solana’s total value locked hasn’t bounced all that much from cycle lows and is still well below highs from mid-2022. Of course, this is adjusting for the dollar denominated gains in SOL which I find to be more valuable information. Furthermore, while the growth in the network’s NFT activity has been intriguing, it’s actually Bitcoin ($BTC-USD) that has completely stolen that thunder from Ethereum rather than Solana:
So what the heck is driving this price move in Solana if it can’t be totally explained away by DeFi activity, NFT sales, or meme coin traders?
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