Solana: A Roaring Comeback (SOL-USD)

Thesis Summary

Solana (SOL-USD) has been one of the most talked about coins in recent weeks. After a furious sell-off, sparked in part by the demise of FTX, (FTT-USD) the coin has now rallied over 200% since hitting a low just above $8.

In this article, I discuss the outlook for Solana for 2023 from both a fundamental and technical perspective.

Ultimately, and though I still hold Solana as part of my long-term portfolio, there are better coins out there.

What Happened to Solana?

Solana was one of the favourite crypto darlings of the 2020-21 bull-run. However, in 2022, it lost over 90% of its value, becoming one of the worst-performing altcoins.

This is not too out of line with the general crypto market, but Solana suffered more than many others after the demise of FTX, due to the strong ties the coin had with the exchange, Alameda and Sam Bankman-Fried.

Alameda and FTX were one of the main forces behind Solana, and also behind Serum. Serum was a decentralized exchange within the Solana blockchain and was the main liquidity provider for the growing DeFi ecosystem. However, with the collapse of FTX and Alameda, Serum also fell, and Solana’s DeFi was brought to a halt, temporarily.

On top of that, because of their strong ties, Solana was one of Alameda’s core holdings besides the FTX token FTT. So when Alameda began to sell-off its assets, Solana was one of the coins which witnessed the most selling pressure.

We can see in the chart above how Solana swiftly fell from over $36 to a third of that in a matter of days. However, we can also see that the coin has rallied very strongly in 2023.

Why Has Solana Rallied?

Since bottoming at just over $8, Solana has rallied over 200%. Not a bad chunk of change for those capable of spotting this bottom. The rally in Solana has been accompanied by a rally in equities and also other cryptocurrencies. Overall, over the last few weeks, “risk-on” sentiment has returned, as inflation cools and expectations of a Fed pivot have increased.

The early rally in SOL could also be partly attributed to the airdrop carried out by Shiba-inu inspired token (BONK). 50% of the supply of his Solana meme-coin was distributed last week, with 20% going towards NFT collections and 10% towards Solana creators. This could have been the reason for some of the renewed excitement behind Solana.

Still, I believe most of this rally can be attributed to the fact that Solana was very oversold and that the general marker has seen a strong rebound. Solana has simply benefitted from the fact that it had much more retracement to carry out.

The real question now, for investors, is whether Solana is worth buying/holding in 2023.

2023 Outlook: Fundamentals and Technicals

From a fundamental perspective, I still believe Solana is not as compelling as some of the other L1 coins out there. With Ethereum’s (ETH-USD) transition to PoS, Solana’s competitive advantage has been diminished.

Solana still is, technically, one of the fastest blockchains, being able to carry out 50,000 TPS theoretically. But speed is only one of many important aspects, and what Solana has in speed, it lacks in security and decentralization.

Security has been a problem for Solana recently, which I pointed out months ago. Solana’s network suffered three major outages in 2022. More recently, Solana has warned that its Mailchimp information had been compromised.

On top of that, Solana is one of the least decentralized networks out there. There are fewer validators than in other blockchains, and the token distribution is highly skewed in favour of insiders.

If we add up Rewards & Airdrops and coins held by Founders & Perojectm we see that 63% of the supply is in the hands of insiders, with only 37% left for actual investors. This gives the foundation a lot of power and makes the network a lot more centralized.

Now, moving on to the technical chart:

It’s very interesting to see that Sol has turned around almost exactly at the 61.8% retracement level. This would be an ideal place to start a wave 3, but I should mention that a lot of coins have reached lower retracements.

The key resistance to surpass, which will make me bullish, is marked by the red line provided by the VPVR. This shows a major area of volume at around $38, which will act as very strong resistance. This is actually also very near where we have our wave ii high.

If this level is breached, I will assume that a rally in wave 3 has begun, which could take Solana into the $300-$400. This is based on the extension of wave 1 applied from the bottom of wave 2.

Takeaway

I still hold Solana in my crypto portfolio, but I am not too thrilled about this project’s fundamentals. Personally, I am more bullish on Ethereum or Cardano (ADA-USD). Nonetheless, I’m sure SOL will also make new all-time highs in the next crypto bull run.