Once upon a time, people used to talk about how Ethereum would flip Bitcoin by market cap. These days though, there's growing talk that Solana could flip Ethereum and become the second-largest crypto. Such speculation is perhaps to be expected, given that Solana has already been flipping Ethereum using metrics like active wallets and fees.
But it still begs the question, could Sol actually surpass ETH to become the largest crypto bar Bitcoin? Today we're going to bring you up to speed on what Solana has been up to, analyze Sol's price action, and see whether it could flip ETH by the end of this crypto bull market.
Solana ETF News
Since we last covered Solana a lot has happened since then. Asset manager Franklin Templeton hinted that it would file for a Solana ETF of its own.
To refresh your memory, asset manager Van Eck filed for a spot in Solana ETF back in June. In August, Van Eck confirmed that it was still pursuing one after the filing was removed from the CBOE website. Franklin Templeton has yet to formally file for a spot Solana ETF, but Canary Capital recently filed for one, suggesting that approvals are perhaps more likely than what the markets are currently pricing in.
Even so, things have been looking better in other regions of the world. In case you missed the news, Brazil approved not one, but two spot Solana ETFs in August. While the inflows into these have been relatively lackluster, JustETF.com notes that Solana ETPs, which of course include ETFs, collectively hold over one billion dollars in sole and dominate global ETP leaderboards.
This is in stark contrast to Ethereum, which Solana has been of course dominating across multiple metrics, not just ETP flows. In July, Solana beat Ethereum by weekly fees for the first time ever. And in August, the Solana ETF ratio hit an all-time high, and it continues to hit new highs at the time of writing this post.
There's just one caveat, and that's that not all of this activity on Solana seems to be genuine. A report by Flip Research published in July suggests that Solana's active wallet and fee metrics are being inflated by trading bots, which have been doing everything from manipulating tokens to launching meme coins. Still, this doesn't change the fact that large investors are aping into Sol via its ETPs.
It also doesn't change the fact that hundreds of millions of dollars are being bridged from Ethereum to Solana. More importantly, it doesn't change the fact that Sol has outperformed ETH over the last year.
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Factual FUD about Solana
Now, before you accuse us of being Solana shills, here's some factual FUD about Solana that you might have missed. In August, Solana fixed a bug that would have caused another outage on its network.
As most of you will know, Solana is notorious for experiencing outages as well as degraded performance. Although the outage never happened, many in the crypto industry noted that it was prevented because Solana's validators had worked together behind the scenes to fix the bug. In other words, validators colluded to make a change to the blockchain, which of course called into question Solana's decentralization.
Naturally, the Solana Foundation argued that Solana validators working together did not make Solana centralized. Others would argue otherwise, but the fact of the matter remains that Solana is of course much more centralized than other blockchains, including Ethereum, especially when you factor in other aspects. You can of course learn more about what decentralization means by using the link in the description.
Factual FUD aside, there's no denying that there's been way more FOMO than FUD around Solana, so here's some factual FOMO about Solana that you also might have missed. The demand for developers is rising because of Solana's meme coin craze. Put differently, meme coins are incentivizing actual building.
Solana founder Anatoly Yakovenko confirmed this in a September interview, which makes us wonder if this was the plan all along. For context, the Bonk meme coin, which kick-started Solana's meme coin craze, was created by Solana developers as a means of reigniting interest in Solana after the collapse of FTX. Makes you think, hmm.
Anyways, on a more serious note, PYUSD on Solana surpassed a market cap of 1 billion dollars in August. There's a caveat here too though, and that's that most of this growth was due to PYUSD incentives. PYUSD's market cap has since fallen by almost 50 percent, presumably because the incentives are now gone.
Be that as it may, it doesn't change the fact that PayPal is looking to leverage Solana for payments with its PYUSD stablecoin. This was confirmed by a PayPal representative at Solana's breakpoint conference in September. They revealed that PayPal is focused on building out B2B payments on Solana with PYUSD.
Speaking of which, there were lots of big announcements made at Solana's breakpoint conference. Highlights include WorldCoin launching on Solana, MakerDAO expanding to Solana via the wormhole bridge, and Solana revealing a new phone called Seeker, which already has over 140,000 pre-orders. The biggest breakpoint announcement of all though was the initial launch of the FireDancer client on Solana.
The initial launch is called FrankenDancer, and it increased Solana's scalability and increased its decentralization by adding another client. The catch is that it's not clear how much it really improved its TPS. It's also not clear when FireDancer will fully launch.
For reference, Anatoly had mentioned in interviews earlier this year that FireDancer would be fully launched by the breakpoint conference in September. The delay could just be a result of the advanced development behind FireDancer, but we're not so sure. It's possible that Solana is waiting for market conditions to improve before the full rollout of FireDancer, as it would have a more bullish effect on Sol's price, and this is simply because other crypto projects have been doing the same.
Consider that the addition of FireDancer will technically make Solana fully complete. In any case, there's another catalyst that could take Sol higher in the short term, and that's FTX creditors getting paid back. Repayments to creditors are expected to begin sometime this month.
Some creditors have already announced that they plan on investing this capital into Sol and Solana's ecosystem. Newsflash, but this could mean billions of dollars of inflows for Sol and Solana altcoins very soon.
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SOL Price Analysis
And this brings me to everyone's favorite part, and that's Sol's price action. If you zoom out to the weekly chart, you'll notice that Sol looks exactly like BTC. Specifically, it's been chopping sideways for months and seems to be on the brink of a massive breakout to the upside, which could have already started. If Sol does break out to the upside, then it could rally to over $300 in the coming weeks.
Conversely, if Sol gets rejected from the long-term trend line it's been battling with over the last few months, then it could fall as low as the bottom trend line in the price range, which could be around $100. If you read our previous Solana update, you'll recall that the way to figure out whether Sol will break higher or get rejected and fall lower is to look at its fundamentals, specifically supply and demand. This time around it's a bit tricky because there are other much bigger factors at play.
The elephant in the room is the US election, which is likely to be ongoing when this post is posted. The consensus view is that Trump is pro-crypto and Harris is anti-crypto. As such, a Trump win would be bullish for crypto and some crypto analysts believe it will be especially bullish for altcoins like Sol.
This is just because a Trump victory would increase the chances that positive crypto regulations are passed and this would make it possible for investors to get more exposure to altcoins like Sol, and that includes being able to invest in altcoins via ETFs. And FYI, the spot Solana ETF decision date is sometime in March.
Conversely, if Harris wins then it would be bearish for crypto, especially for altcoins like Sol, and this is just because a Harris victory would increase the chances that the status quo of cracking down on crypto would continue, at least in theory.
In practice though, this could play out a little bit differently and that's because Harris's largest donors have reportedly been pressuring her to fire SEC chairman Gary Gensler, which is exactly what would happen under a Trump administration.
It seems everyone missed this fact and it could cause crypto to crash now, but rally next year after Harris fires Gary, hopefully. Regardless, the key takeaway is that the election is going to have a profound impact on Sol's price, irrespective of its fundamentals, at least in the short term.
The funny thing is that it's also been quite hard to assess Solana's fundamentals due to the rise in use of trading bots that we discussed earlier. For example, Dapp Radar notes that Solana's Radium DEX has seen over 90 million unique active wallets over the last month. That figure was 50 million just a few days ago.
Even a die-hard Solana shill would have a hard time arguing that these are real users, given the huge discrepancy between users on Solana's other dApps. If you need more evidence, look no further than SolScan's analytics dashboard. As you can see, the number of active wallets suddenly spiked out of nowhere in October and you'll notice this spike looks like the one over the summer.
As such, we can assume that Solana's actual user count is closer to 1 to 2 million. If this is the case, then it suggests that the number of active users on Solana has been holding steady around this figure over the last year. That's good for Solana, but bad if you're trying to suss out which way the fundamentals are headed. Thankfully, the total value locked in Solana's DeFi protocols shows us this.
As you can see, Solana's TVL has been rising for weeks. Notably, it's been rising more than Sol's price, which suggests that the TVL increase is as a result of actual inflows and not just Sol's price appreciation.
You'll recall that this was also the case when we last covered Solana and it made us very bullish on Sol. This time is no different. The continued rise in Sol's TVL suggests there's a higher chance that Sol will break to the upside from a fundamental perspective.
Even if this TVL is coming from bots, it doesn't change the fact that these bots are increasing the liquidity on Solana's ecosystem and that's bullish. It's also impressive when you consider that Sol's supply has increased by roughly 6 million over the last few months. Assuming an average Sol price of about $150, Sol could have experienced up to $1 billion of Sol pressure during this period. You wouldn't be able to tell from looking at the charts.
SOL Price Target: $300+
Now whether Sol can hit $300 or more in the coming weeks ultimately depends on its upcoming milestones. The biggest milestone is the one I mentioned earlier and that's the rollout of FireDancer.
You'll recall that it's unclear when the full rollout will occur, probably sometime next year. Besides that, Solana doesn't seem to have any big milestones in the coming months, at least at first glance. Upon closer inspection though, you realize that Solana is subtly trying to decentralize.
For instance, there was a debate on whether to dissolve the Solana Foundation at the Breakpoint conference. Meanwhile, Realms, which is the governance dashboard for crypto projects on Solana's ecosystem, silently spun out of Solana Labs to become its own entity. From our perspective, it looks like both of these events are baby steps towards making Solana decentralized by introducing on-chain governance.
What's interesting is that on-chain governance was a hot topic in Solana's forums when we covered the project earlier this year. Since the summer though, these discussions seem to have simmered down and this could be because the plans have been scrapped or because they're being implemented. Obviously, we lean towards the latter and it makes perfect sense.
Solana is actually centralized in its current form, at least relative to other cryptos. At the surface level, this is a problem because of regulators like the SEC. At a deeper level though, this is a problem for Solana's long-term potential.
You see, Solana's endgame is to become a decentralized competitor to centralized stock exchanges like the Nasdaq. At the same time, Solana wants to remain credibly neutral, meaning that nobody can manipulate what's happening on its blockchain. And this is what you want to have as a global Nasdaq.
But this requires making it very difficult, if not impossible, for anyone to change the Solana blockchain once it's finished. And you'll remember that Solana will be finished once Firedancer will be rolled out. To be exact, Solana will be out of beta once Firedancer has launched and accounts for one-third of validator traffic.
Given this fact, it stands to reason that Solana is hoping to decentralize before Firedancer launches. In turn, it also stands to reason that Solana wants to launch Firedancer before the ETF is approved, which could happen as soon as March. Taken together, this suggests we'll see on-chain governance sooner than later.
All we're wondering is what the Solana Foundation will do with the Sol that it holds. The aforementioned debate about dissolving the foundation revealed that it holds a whopping 80 million Sol, which it has been delegating to validators so that they remain profitable. And that's almost 20 percent of Sol's supply.
One of the participants at the debate suggested having the Solana Foundation burn its sol when it dissolves because it would be very bullish for Sol's price. We couldn't help but be reminded of how Anatoly doesn't take issue with the fact that meme coins are the key driver of development activity. This is a bit concerning, given that a representative from the French bank Societe Generale said that the reason why its innovation arm chose to build on Solana was because of its developer activity.
Chances are that other institutions have done the same. Never mind that the Solana Foundation's large Sol holdings could affect the spot Solana ETF approval. And this brings me to everyone's least favorite part, and that's the challenges that Solana faces.
Challenges Facing Solana
The first challenge is the one that Solana itself has acknowledged, and that's centralization. It's not far-fetched to say that Solana Labs and the Solana Foundation still have enormous influence over Solana itself. This is why it's fascinating that Anatoly has been doing a lot fewer interviews in recent months, although he did recently appear on an episode of the chopping block, which is well worth a listen.
For those unfamiliar, Anatoly has historically done lots of interviews. He seemed to imply it's because he's focused on Solana's Seeker phone, but logically he'd still be doing lots of interviews about the phone. Not only that, but Anatoly didn't even do a keynote speech at the recent Breakpoint conference.
In fact, it seems like he only participated in a couple of panels. To be fair, this could be because Solana Labs co-founder Raj Gokal has been taking the mic, so to speak. Raj has been doing lots of interviews recently.
Whatever the case, the fact of the matter is that key figures at Solana have been a lot more focused on being less of a central component of the project. Perhaps they know that appearing too centralized comes with regulatory risk, and this ties into Solana's second challenge, and that's its narrative. The only thing more fascinating than Anatoly keeping it low-key is Solana suddenly doubling down on its original goal of being a decentralized Nasdaq.
For a while, this endgame seemed to have fallen by the wayside, but now Solana is once again pitching itself as a decentralized competitor to Nasdaq. To be fair, this pivot could be happening so that institutional investors have a narrative for Solana when its spot ETFs launch, and you'll all know that the lack of an Ethereum narrative is arguably why its spot ETFs have underperformed so badly. It's not just the institutional investors though.
When retail investors inevitably return to the crypto market, they're also going to be looking for hot narratives to ape into. Those of us who've been around for a cycle or two know that Solana's selling point is that it's a top competitor to Ethereum, but any new entrance to the crypto market will see dozens of altcoins fall in under the same umbrella.
They'll also learn that there are a handful of cryptos that are competing with Solana, and it goes without saying that a substantial percentage of them will think, well why don't I just buy a Solana killer instead? And this of course relates to Solana's third challenge, and that's competition.
Had Solana experienced another outage over the summer, this would have benefited so-called Solana killers like Aptos and Sui. Whereas Ethereum is losing market share because it's moving slowly, Solana risks losing market share because it's moving too fast. Any major technical issues or outages could therefore result in tension and capital turning elsewhere, and this could literally amount to tens of billions of dollars, as we could be entering the biggest crypto bull market to date.
Solana needs to deliver on its promises with no hiccups, or else Sol will become the next ETH. Jokes aside, it's easy to forget that every cryptocurrency faces its own unique challenges. Compared to all the other cryptos that are out there, Solana faces a few, and that's part of why it's one of the biggest.
Moreover, the Solana team has been some of the most receptive to feedback and has actively sought the most critical opinions. This feedback was incorporated, and most of those earlier technical issues that were raised have been ironed out. You can listen to Anatoly's aforementioned interview on the Chopping Block podcast for more info on that.
When looking at the broader altcoin market, it's also quite clear that Solana has a lot of potential relative to most other cryptos. As we mentioned in our previous Solana update and elsewhere, it's possible that Sol is following ETH one cycle behind, and that means that Solana could hit a market cap of 550 billion dollars in this cycle, and that would translate to a Sol price of around a thousand dollars, which many are predicting with and without spot Solana ETFs.
When you factor in the relatively low risks involved in this return, it makes it easy to understand why so many people hold Sol, including yours truly.
And who knows, maybe Sol will even flip ETH this cycle, and this would require ETH holding still while Sol rallies. It looks like it's currently doing that, but some would say it won't last long. What do you think?