Solana - the party is over... ☢ Sol Crypto Token Analysis

Summary

The video discusses the current state of the cryptocurrency market, focusing on Solana's performance amidst a downturn. It explores on-chain metrics, the impact of meme coin trading, and compares Solana's total value locked with other blockchains. The script delves into Solana's staking trends, token inflation, and its relative performance to Bitcoin and Ethereum, suggesting caution due to market correlations and potential risks, with a personal inclination towards shorting underperforming assets.

Takeaways

• 📉 The market is currently experiencing a downturn, with Solana being significantly affected by the decline in prices.
• 🔍 On-chain metrics suggest that Solana has been primarily used for meme coin trading, which lacks real-world utility and is player versus player, leading to a concentration of capital and a decline in transactions over time.
• 📊 Solana's total value locked has decreased by 11% in the last month, which is a moderate loss compared to other blockchains like Ethereum and Arbitrum.
• 💰 Despite a decrease in trading volume, the liquidity on decentralized exchanges has remained relatively constant, which is surprising as one would expect a correlation between capital and trading activity.
• 📈 An interesting positive trend is the increase in Solana being staked, which locks up more supply and could theoretically increase the price due to reduced availability.
• 🚫 However, Solana's token inflation rate of 5.2% annually means that the staking program cannot fully offset the supply expansion, resulting in long-term sell pressure.
• 🤔 The relative performance of Solana is more important than its performance in USD, as investors seek to outperform the broader market, especially Ethereum, which Solana competes with.
• 🔗 High correlation coefficients indicate that most altcoins, including Solana, are more closely tied to Ethereum's performance than Bitcoin's, suggesting a speculative investor base.
• 📌 Solana's dominance in the cryptocurrency market is at around 3%, which is somewhat at a historical high, but there is significant room for growth relative to Bitcoin.
• 💔 The lack of growth in the stablecoin market cap over the last few months suggests a halt in new fiat currency entering the crypto space, which could lead to a bear market.
• 🚫 The speaker personally believes the risk-reward ratio for Solana is not favorable at the moment, with too much capital locked in decentralized exchanges and a lack of new money entering the market.

Q & A

What is the current state of the cryptocurrency market according to the transcript?

The cryptocurrency market is described as 'absolute crap,' with Solana being significantly affected by the price declines.

Why does the speaker believe Solana has turned into a 'meme coin casino'?

The speaker suggests that Solana has been primarily used for meme coin trading, which lacks real-world usage and is purely player versus player, leading to a concentration of capital in fewer hands and a decline in transactions over time.

How does the speaker analyze the on-chain metrics for Solana compared to other blockchains?

The speaker compares Solana to other blockchains using data from defy Lama, noting that Solana lost 11% of its total value locked in the last month, which is a middle-of-the-pack performance compared to Ethereum, Binance Smart Chain, and Arbitrum.

What is the speaker's view on the correlation between trading activity and capital in decentralized exchanges?

The speaker notes that trading activity has declined, but capital in decentralized exchanges has remained relatively constant, suggesting that the returns for capital providers, paid out via trading fees, should theoretically decrease as trading volume goes down.

How does the speaker describe the current trend in Solana's NFT marketplace platform fees?

The platform fees for NFT marketplaces on Solana have been on a clear downtrend, peaking at the beginning of March and declining since then.

What is the significance of the increasing amount of Solana being staked according to the speaker?

The speaker points out that an increasing amount of Solana being staked means more of it is getting locked up, which should theoretically reduce supply and, according to economic principles, could lead to an increase in price.

How does the speaker address the issue of token inflation in Solana?

The speaker explains that despite the staking program, Solana's token inflation rate of 5.2% means that new tokens are being introduced to the market faster than they are being locked up, creating long-term sell pressure.

What does the speaker consider when evaluating the relative performance of Solana?

The speaker evaluates Solana's performance relative to Bitcoin and Ethereum, noting that while Solana has room to outperform Bitcoin, its potential upside against Ethereum is limited, and the potential downside is significant.

Why does the speaker believe most altcoins are more correlated with Ethereum than with Bitcoin?

The speaker suggests that the investor profiles for Ethereum and Solana are more speculative and enjoy the player versus player aspect of trading, whereas Bitcoin investors are more interested in long-term allocation and diversification.

What is the speaker's view on the current state of the stablecoin market and its impact on the overall crypto market?

The speaker notes that the stablecoin market cap has stopped growing for the past 2-3 months, indicating a lack of new fiat currency flowing into crypto, which is a bearish signal for the overall market.

What is the speaker's personal strategy given the current market conditions?

The speaker is shorting a token due to its underperformance, high relative valuation, and increasing token supply, believing that the risk-reward ratio does not favor Solana at the moment.

Outlines

00:00

📉 Solana's Market Decline and On-Chain Metrics

The market is struggling, and Solana is not immune to the price declines. Analyzing on-chain metrics reveals a heavy involvement in meme coin trading, transforming Solana into a 'meme coin casino'. This shift results in declining transactions as the game continues, concentrating capital in fewer hands. Compared to other blockchains, Solana's total value locked has decreased by 11% over the last month, similar to Ethereum, with larger losses seen in other platforms. Despite a decrease in trading activity and NFT marketplace fees, the capital in decentralized exchanges remains stable. This stability contrasts with the expected correlation between capital and trading volume, which typically affects liquidity pools and trading fees.

05:01

📊 Solana's Performance and Staking Trends

Solana's staking activity is on the rise, which should theoretically reduce the supply and increase the price. However, this is offset by a 5.2% annual inflation rate, adding 24 million tokens to the market each year. This new supply surpasses the amount being staked, creating long-term sell pressure. Unlike Bitcoin's shrinking supply or Ethereum's deflationary mechanism, Solana faces a growing supply. Relative performance analysis shows Solana's dominance in the cryptocurrency market at 3%, with potential for outperformance against Bitcoin and Ethereum. Despite hitting historical highs, the downside risk remains significant, highlighting the speculative nature of altcoin investments.

Keywords

💡Solana

Solana is a high-performance blockchain platform designed for decentralized applications and cryptocurrencies. In the video, it is discussed as a subject of market scrutiny due to its price decline, and the speaker explores on-chain metrics to evaluate its current state and potential for recovery or investment.

💡On-chain metrics

On-chain metrics refer to data derived from the blockchain itself, such as transaction volume, number of addresses, and network activity. These metrics are used in the video to analyze the actual usage and health of the Solana network, providing insight into whether it's an opportune time to 'buy the dip'.

💡Meme coin

Meme coins are cryptocurrencies that are created as a joke or for fun, often based on internet memes or trends. The script mentions that Solana has been used heavily for meme coin trading, which lacks real-world utility and is speculative in nature, contributing to market volatility.

💡Liquidity pool

A liquidity pool is a reserve of assets in a decentralized exchange (DEX) that allows users to swap tokens without the need for an order book. The video discusses the size of liquidity pools as an indicator of the health of the Solana ecosystem, noting a concentration of meme coins within these pools.

💡Total value locked (TVL)

Total value locked refers to the amount of assets locked in a blockchain protocol, often used to measure the size of the DeFi (Decentralized Finance) market. In the script, TVL is used to compare the performance of Solana to other blockchains, indicating a loss in the last month.

💡Decentralized exchanges (DEX)

Decentralized exchanges are platforms that allow users to trade cryptocurrencies without a central authority. The video notes that despite a decline in trading activity, the capital in DEXs on Solana has remained relatively constant, which is surprising given the decrease in trading volume.

💡Staking

Staking in the context of cryptocurrencies involves locking up a certain amount of tokens to support the operations of a blockchain network, often in return for rewards. The script discusses the increase in Solana staking, which locks up tokens and theoretically should reduce supply, potentially affecting price.

💡Token inflation

Token inflation refers to an increase in the total supply of a cryptocurrency over time. The video explains that despite staking, Solana's annual inflation rate is significant, which adds new tokens to the market and can create selling pressure, affecting the price negatively.

💡Relative performance

Relative performance measures how an asset performs in comparison to another asset or a benchmark. The script uses this concept to evaluate Solana's performance against Bitcoin and Ethereum, highlighting the importance of outperforming these assets to justify the risk of investing in Solana.

💡Correlation coefficients

Correlation coefficients are statistical measures that indicate the extent to which two variables move in relation to each other. In the video, these coefficients are used to show that most altcoins, including Solana, are more closely correlated with Ethereum than with Bitcoin, suggesting that altcoin investors are more speculative.

💡Stablecoin market cap

The stablecoin market cap refers to the total market capitalization of stablecoins, which are cryptocurrencies pegged to a stable asset like the U.S. dollar. The script notes that the lack of growth in the stablecoin market cap could indicate a lack of new money entering the crypto market, which can contribute to a bearish trend.

Highlights

The Solana market is experiencing a downturn, with price declines that have not spared the cryptocurrency.

The speaker suggests using on-chain metrics to identify potential buying opportunities during market dips.

Solana has been primarily used for meme coin trading, turning into a 'meme coin casino'.

Meme coins lack real-world usage, leading to player versus player dynamics and a concentration of capital in fewer hands over time.

Defi Lama data shows a loss of 11% in total value locked on Solana in the last month, compared to other blockchains.

Despite a decline in trading volume, liquidity on decentralized exchanges has not been significantly affected.

The platform fees of NFT marketplaces on Solana have peaked and are now in a clear downtrend.

An interesting trend is the increase in Solana being staked, which locks up more tokens and could theoretically increase price.

Solana faces token inflation with an annual inflation rate of 5.2%, which may offset the benefits of staking.

The speaker discusses the importance of outperformance when investing in altcoins like Solana over more stable assets like Bitcoin.

Solana's dominance in the cryptocurrency market is at around 3%, which is somewhat at a historical high.

The potential upside for Solana relative to Ethereum is limited, with a more significant potential downside.

Altcoin correlation coefficients show that most altcoins, including Solana, are more highly correlated with Ethereum than with Bitcoin.

The stablecoin market cap has stopped growing, indicating a lack of new fiat currency flowing into crypto.

The speaker shares a personal strategy of shorting tokens with increasing supply and underperformance, like Solana.

The speaker provides a tutorial on how to bet on falling prices as part of a premium membership.

A free Telegram group is offered for further discussion and sharing of investment strategies.

Transcripts

the market is absolute crap and Solana

is not getting spared from the price

declines let's have a look at some

onchain metrics let's have a look at

actual usage is this potentially an

opportunity to buy this dip because I

believe the best way to beat the market

is to have better data than most others

right if we want to figure out where

bottoms and tops are we need to find out

who's buying who's selling who's using

Solana now we all know what Solana have

been used for in the last months and

that was meme coin trading just have a

look at this this is dec.com and this is

all tokens ordered by their liquidity

pool size and we pretty much only see

meme coins here Solana completely turned

into a meme coin casino and since memec

coins don't have any real world usage

it's 100% player versus player and of

course there's a luck component involved

but there's also skill involved as in

the people that are more skilled tend to

make make money from the memec coin game

thus the longer the game goes on the

more Capital gets concentrated in a few

hands and the majority loses their funds

that's the reason why transactions tend

to decline over time if there's no new

people coming into the space now let's

compare Solana to other blockchains this

is defy Lama and this shows the total

value locked development in the last

month here on the second last column

Solana lost 11% of its total value in

the last last month with that number

it's pretty much in the middle ethereum

lost to a similar degree Bas lost even

more arbitrum lost a little bit less

this is then how that looks like over

time this was the first defi summer in

2021 then we saw the nice Revival since

October of last year this is where mem

con trading started and now in the

recent past we see again quite a bit of

a hiccup the liquidity on decentralized

exchanges isn't yet that much affected

and that's quite surprising because the

people that deposit their Capital into

decentralized exchanges into those

liquidity pools they get their return

paid out via the trading fees so when

you're trading say on radium then you're

paying a fee and the fee goes partially

to liquidity pool providers when trading

volume goes down then in theory the

return of the capital providers goes

down as well and thus the incentive to

deposit goes down as well so there

should be at least long-term a

correlation with the capital in

decentralized exchanges and trading

activity trading activity went down but

the capital so far is still relatively

constant so here's that trading activity

it peaked out in the middle of March of

this year since then we rather see a

decline other narratives unfortunately

can't catch up either this is the

platform fees of nft marketplaces on

Solana that peaked out even a bit

earlier at the beginning of March of

this year but also a very clear

downtrend unfortunately and and if

history is any indication that low level

can sustain for quite a while now not

all charts are going down an interesting

chart that's going up is how much Solana

is being staked so more and more so gets

locked up this should reduce the supply

and with a reduction in Supply the price

in theory should go up so have a look at

this that's a Solana that's been staked

measured in s so and this continues to

increase quite a bit but here's the

problem Solana also has token in

inflation we've got a circulating supply

of 462 million so tokens this is the

supply development over time and we are

currently at an annual inflation rate of

5.2% roughly 5.2% of the current Supply

equals to 24 million so tokens that hit

the market every year let's check this

out again this is in total 24 million

but this didn't happen in one year this

happened over the span of 3 years so

it's roughly only onethird of the newly

added Supply every year that gets locked

up so the staking program is relevant

but relative to the supply expansion it

can't unfortunately supersede this so

there's still long-term sell pressure on

S so this is not like ethereum where

we've got a shrinking Supply or like

Bitcoin where a l Supply gets scooped up

by the Bitcoin ETF or where some of that

Supply even gets lost for Bitcoin on

average roughly 2% per year gets lost

now let's have a look at relative

performance I don't just like to look at

us dollar charts right because when

Bitcoin goes up and ethereum goes up

then Sol tends to go up as well and vice

versa what I believe is more important

is outperformance because that's in the

end the reason why we get into altcoins

in the first place right we take on more

Risk by buying Solana over Bitcoin thus

we want to get more performance right if

you take on more risk you need to have

more performance and so this is the

chart most people look at this is just

Solana in US dollars and historically we

seem to be relatively high and we can

see very nicely that since Q3 of last

year so performed quite well in terms of

US Dollars again but there's another

measure this is Solana dominance this is

how much of all of cryptocurrencies

market cap is in Solana and that's

currently at roughly 3% and that is

somewhat at the Historical High here

Solana relative to bitcoin it's not at

an historical High there's actually

quite a bit of room if Solana was to

catch up with bitcoin's performance

reach those historical highs that' be

another outperformance of roughly 80%

but here's the chart that I believe is

actually the most important and that is

Solana relative to ethereum because

Solana and ethereum are competing for

similar spaces and here we see how

nicely those tops align we have recently

hit several times the peaks of 2021 and

the potential upside isn't that massive

anymore it's 35% until the a gets thin

again the potential downside though is

pretty high right- 66% or maybe in the

worst case minus 80% now why do the tops

align here so well in the ethereum based

chart I believe the answer is

correlation have a look at those various

altcoin correlation coefficients

relative to bitcoin and relative to

ethereum the higher the number is the

more those two assets tend to move in

tendem with one another and the numbers

here in the First Column tend to be

lower than the number in the second

column this is true for the 90-day

correlation coefficient it's also true

for the onee correlation coefficient the

numbers to ethereum tend to be higher

than to bitcoin so most altcoins tend to

be higher correlated to ethereum so

actually what we are doing with buying

an altcoin is we try to outperform

ethereum not necessarily Bitcoin the

kind of person that buys into Bitcoin is

not necessarily the same kind of person

that buys into ethereum or into Solana

the ethereum and Solana investors tend

to be more speculative in nature they

tend to enjoy this player versus player

game much more the Bitcoin investor

simply just wants to allocate and forget

maybe Diversified together with the

stock Investments and the property

Investments and so when it's the same

kind of person that buys ethereum and

that buys Solana then that same kind of

person might also decide to enter and

exit the market pretty much the entire

portfolio that's probably one of the

reasons why we see that much correlation

with ethereum to the altcoins and that's

probably also the reason why we see

those tops align so nicely for Solana

relative to ethereum and so here's the

reason why the market is suffering so

much this here is the stable coin market

cap and that market cap unfortunately

isn't growing for the last 2 to 3 months

there's no more fiat currency flowing

into crypto that can push up the prices

in aggregate here's a more long-term

chart of that stablecoin market cap when

this is going up then crypto is

expanding when this is going down we

tend to be in a bare Market currently we

are expanding again since October of

last year but unfortunately that

expansion has recently stopped and maybe

we will see a crash again very similar

to the Tera Luna collapse right when the

anchor protocol went belly up I don't

really like to get risk on right now I

believe the risk versus reward isn't

really warranted for Solana I believe

that there's still too much Capital

locked up in the decentralized exchanges

relative to the trading volume so people

don't really get a lot of trading fees

at the same time we don't see a lot of

money flowing into crypto as a whole at

the same time we see that there's maybe

another 30% outperformance versus

ethereum but a lot of potential

underperformance again rative valuation

is pretty high and when the situation is

so Bleak why not bet on falling prices

on things like this I'm shorting this

token over here very little volatility

very constant underperformance because

again the token Supply is increasing

relatively fast and I've made a tutorial

on how to bet on falling prices over

here feel free to check it out it's part

of the premium membership it's down

below it's the Bitcoin trade.com this is

also where I'm sharing what this asset

actually is if you've got like $3,000 or

so to put on this short premium should

be for free again I can't of course

guarantee this there's always risk in

any investment but that's what I'm

personally doing right I'm not trying to

find the needle in the Hy stack the one

asset that might outperform the rest

right now there's no more crypto

expansion it's player versus player so

why not simply go with the Hast deck

underperforming right and most altcoins

do worse than Bitcoin most of the time

why not bet on that and get the odds in

our favor if your portfolio isn't yet

large enough to justify premium there's

also a free telegram the link is as well

down below looking very much forward to

chatting with you cheers