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?
Honestly, I think this might be a delayed reaction to the Visa V 0.00%↑ pilot program and here’s why:
Check out the +68% 1 month change in the circulating supply of USDC on Solana. USDC supply is down on Polygon ($MATIC-USD), down on Arbitrum ($ARB-USD), and basically flat on Ethereum and Binance ($BNB-USD). But it’s ripping on Solana. You might remember, this is the exact metric I pointed out in September when I first posted about the Visa/Solana news:
SOL might be an interesting speculation on this Visa news, but I’d personally wait until the stablecoin market cap on that network grows before jumping into any SOL positions. Particularly, we’d want to see the USDC balance on that network increase and overtake USDT as the top coin.
Fast forward just a few months and that is exactly what has happened. And it isn’t even just that the USDC circulating supply has increased, it’s actually being used to a significant degree. Here’s the chain breakdown of stablecoin transfer value by month going back the last three years. The green in the chart below is the Solana network:
You can’t really tell from that chart but there was just under $1.2 trillion in stablecoin transfer value last month spread out between the major chains. Of that total, over 25% of the value was transferred over Solana and almost all of it was USDC:
In the above chart, I’ve isolated the stablecoin transfer value shares to just USDC and Tether ($USDT-USD) over Solana. The USDT is purple. It’s such a small share of the total that you can’t even see it. And that bar all the way to the right is USDC share for January 2024. It’s admittedly just two days into the period but USDC over Solana has so far accounted for nearly 45% of all stablecoin transfer volume in crypto. This is BONKers and a much better reason for SOL continuing to increase than traders pumping meme coins.
But on the USDC swaps, I can’t think of any other entity that would be impacting the stablecoin market in this way other than Visa. But if you have any ideas, please share them either here in the comment section or in the chat. It takes a village and all heretic opinions are valued.
Checking in on the Grayscale NAV rates, I can’t help but notice Grayscale’s Solana Trust $GSOL is no longer the most egregiously priced Grayscale fund. That honor now goes to the Grayscale Filecoin Trust $FILG:
This perfectly illustrates the problem with buying Grayscale funds without paying attention to the premiums. When I wrote about GSOL in mid-November, the fund shares were $202 and SOL was at $54. Since then, Solana has doubled but the fund is down 23%. What I didn’t know at that time was just how significantly Solana would start impacting stablecoin transfers.
In any case, it’s all incredibly interesting and I hope it’s helpful information. If the killer app for decentralized blockchains is payments and Visa is using Solana to settle transactions… SOL feels like a good long. Of course, this thing has ripped a kajillion percent in a short amount of time, so be careful and don’t forget to lock in profit along the way.
Disclaimer: I’m not an investment advisor. Cryptos could all go to zero. I hold BTC, ETH, SOL, & MATIC. I also provide USDC liquidity via THORChain.