Are We Heading Into A Solana Bull Market?

Solana stood out as one of the best-performing L1s during the last bull market due to its groundbreaking technology. The collapse of FTX took a heavy toll on Solana, resulting in its price falling over 90% from its ATH.

However, Solana is making a remarkable comeback. SOL’s price has recovered from $9 at the beginning of the year to $60 at the time of writing this piece, a 6x increase, which is impressive for a layer 1 blockchain of Solana’s market cap. In the past month alone, Solana has surged almost 200%.

Several metrics indicate a bull case for Solana in 2024 and beyond. Let’s delve into the specifics of Solana’s massive comeback.

TL:DR

• Solana’s association with FTX led to a dramatic drop in the price of SOL after the FTX collapse.

• Several on-chain metrics indicate that Solana is making a comeback.

• Solana’s resurgence is fuelled by renewed developer and institutional interest in the network coupled with strong community support.

• Despite the heavy selling of SOL by FTX as directed by ongoing court proceedings, SOL has continued to rally.

• Solana still faces several shortcomings, such as frequent network outages.

Solana’s Resurgence By The Numbers

In the past one month, Solana’s TVL has surged to $529 million from $300 million. This represents huge capital inflows into the Solana ecosystem.

This significant surge in TVL is a huge milestone, though it still represents a tiny fraction of Solana’s ATH TVL in 2021, when it peaked at $10 billion.

Solana’s number of users is also growing steadily. On November 11, Solana surpassed Ethereum in the total number of daily users. However, while Solana continues to show strong growth in active users, Ethereum maintains a more extensive user base when considering its multiple layer 2s.

The price of SOL continues to rally amidst these developments, currently sitting at $61. These changes are happening despite FTX selling its massive SOL holdings. Solana’s strong resilience demonstrates its capability to weather unfavorable market conditions.

Where Is The Solana Hype Coming From?

Remember the days before the last bullrun when everyone referred to Solana as the “Ethereum killer”?

Solana went from being the Ethereum killer to a network struggling to survive. Fast forward to today, Solana is once again showing signs of life amidst an even more competitive landscape led by Ethereum and its booming layer 2s.

We’ve identified several factors that may be behind this impressive recovery:

1. Solana’s Partnerships & Institutional Interest

Solana is leading the charge in partnerships with tier-1 institutions with global impact.

Visa recently partnered with Solana to facilitate the issuance of Visa’s USDC stablecoin. Solana’s unmatched speed and low transaction costs position it as one of the best networks to support Visa’s transaction capacity needs.

Visa’s partnership with Solana is arguably one of the biggest events on the road towards merging blockchain with legacy financial infrastructure. Four out of ten credit card transactions use Visa, and with millions of daily transactions, this partnership will bring a large number of new users into Solana’s network.

As the web3 revolution picks up pace, other institutions will look into Solana’s tech stack for integration with blockchain. Solana already integrated with Chainlink, a step forward in developing infrastructure for the next generation of tokenized real-world assets.

Many experts have noted that the next bullrun will be ruled by institutional rather than retail investors, and Solana is well positioned to attract institutional players.

One of the markers of rising institutional interest we’ve witnessed recently is the surge of Greyscale’s Solana Trust(GSOL) to trade at a 869% premium to its underlying assets. Grayscale provides institutional investors with trusts that give exposure to digital assets in a compliant and more straightforward way than holding them directly, and the performance of its assets indicates institutional interest.

One thing we can be sure of is that Solana will likely enjoy a sustainable growth phase if it continues to attract huge partnerships.

2. A Broad Focus On Mainstream Use Cases

Similar to Ethereum, Solana is a network with a broad array of use cases. Solana’s use cases span from DeFi to GameFi to NFTs, not to mention other utilities in the nascent stage, such as the metaverse.

Supporting a good number of use cases has contributed to attracting and retaining new users to the network. Compared to blockchains like Injective or Sei, which are tailored for a specific use case, this approach is more sustainable in the long run, given the nature of its diversity.

3. Solana’s Active Community

Web3 is centered around communities. A project with a solid, loyal community is likelier to do well than one without. Solana boasts a huge community of developers, builders, and enthusiasts.

According to Sanbase, Solana currently has the most significant number of developer activity out of all the smart contract blockchains. Solana maxis have also kept their faith alive amidst Solana’s cold bear phase. This has contributed to the network sustaining its relevance and fueling its resurgence.

4. Solana NFTs Boom

Solana has always been a home for NFTs. Solana’s NFT market has seen some significant growth. According to Crypto Slam, NFT sales volume has risen by 35%.

NFTs are vital because they attract beginner retail investors into the ecosystem and, as a result, contribute to its growth.

5. Airdrop Farming

There’s an active speculation that a number of token-less projects within the Solana ecosystem will likely conduct airdrops in the future.

Airdrop farmers have noted these projects, which has led to more capital being bridged into the ecosystem. For instance, Jupiter Finance, one of the DEXs in Solana, has announced a 40% airdrop to the community, a strong catalyst that has generated huge user activity.

As the bull market is fast approaching, many other projects will likely release their tokens and airdrop to early users during this time.

Airdrop farming has generated traction for blockchains in the past, but how this plays out, in the long run, depends on the specific projects within the ecosystem and the network’s fundamentals.

Are We Heading Into A Solana Bull Market?

Based on the metrics currently in place, Solana’s solid fundamentals, and use cases, we are likely heading into another Solana bull market.

The following factors underscore this assumption:

• Solana has the technology it needs to outperform its competitors both now and in the future, a clear indication that it will remain relevant for a long time to come. Solana has remained competitive in the face of new generation blockchains and layer 2s with innovative technology, a candid sign that it’s a strong contender in the web3 infrastructure space.

• Institutional interest in Solana will attract and maintain a massive community of users. Visa and Shopify will play a key role in driving positive sentiment for Solana and generate a ripple effect that will encourage more adoption by other institutional players.

• The FTX shenanigans responsible for Solana’s adverse price action will soon be a thing of the past. We’ll likely experience renewed interest in SOL as investors discard their skepticism when Solana fully dissociates from the FTX saga.

• Solana’s release of Firedancer, a third-party client software, will massively improve the network’s performance, scalability, and decentralization. Firedancer pushes Solana’s theoretical transaction capacity from 65,000 TPS to well over 1,000,000 TPS, opening up a new window of opportunities, especially for TradFi integration.

To emphasize the possibility of a bull market for Solana, VanEck, an asset manager with over $75 billion AUM, recently published their SOL price trajectory forecast. According to their report, SOL will potentially grow by 8000% by 2030, reaching a staggering $3,211. Even the conservative figures still point towards Solana’s sustained growth.

As major institutional players, governments, and retail investors at large shift towards blockchain and cryptocurrencies, Solana stands at the forefront as a viable provider of scalable infrastructure.

Solana Ecosystem Review

Solana’s booming ecosystem hosts more than 400 projects spanning through different verticals.

From a TVL basis, liquid staking protocols like Marinade and Jito hold the most TVL. However, among the best short-term performing projects include DEXs and GameFi.

Some notable projects include:

• Serum: Serum is a DEX built for high-frequency trading. Serum enjoys the same technical capabilities as new generation DEXs on emerging layer 2s like Arbitrum, making it highly attractive for sophisticated traders.

• Stars Atlas: This space-exploration-themed strategy game in Solana utilizes the ATLAS coin for in-game purchases. The game has already attracted a huge fan base and is set to roll out some newer features. Solana is also expected to partner with Krafton, the video game developer behind PUBG. This partnership will be very instrumental as PUBG is one of the most popular games in the world, with over 70 million downloads.

• Jupiter: Jupiter is a new DEX aggregator in Solana, supporting several chains. Jupiter has already surpassed ThorChain and entered the top 5 DEXs by 24-hour trading volume, trailing behind Uniswap V3 by a small margin.

• NFTs marketplaces: NFT marketplaces like Magic Eden and SolSea have registered increased user activity amidst the NFT boom. OpenSea is also set to support Solana NFTs, a huge development that will facilitate the trading of Solana-based NFTs.

Solana’s Shortcomings

Despite Solana’s clear value proposition and amazing technology to back it up, it faces a myriad of shortcomings that can stall its growth.

One major challenge Solana grapples with is its difficulty in generating fees. By design, Solana’s low fees make it difficult to earn revenue from users. Currently, Solana only generates around $1 million per month.

This is a tiny fraction compared to Ethereum's $130 million monthly revenue. Fee considerations are always important to investors as they evaluate new investment options.

Another challenge is Solana’s frequent network outages in the recent past. Solana’s co-founder Anatoly Yakovenko referred to these regular outages as a “curse” but cited fast speeds and low costs as the cause, signaling an apparent tradeoff network users have to deal with.

While The Solana Foundation has clarified that they have improved the network’s reliability as indicated by less frequent outages this year, we’re yet to see how the network will behave in the face of increasing user count.

Apart from outages, Solana’s security remains questionable. The network has experienced three hacks in the past year. Even though these hacks resulted in no loss of funds, they unveiled some underlying security vulnerabilities in Solana’s smart contracts.

Security concerns could weigh in negatively on the network’s adoption and performance, and without an urgent demonstration of safety, Solana is not yet out of the woods. The impact of one considerable hack draining liquidity from Solana could be catastrophic, generating negative sentiment for years to come.

Best Case Scenario For Solana In 2024

Solana’s doom was perhaps a blessing in disguise. As Ethereum founder Vitalik Buterin notes, now that the institutional money from the likes of FTX is out, Solana will be better placed to focus on the tech from a community-driven angle.

2024 might be a good year for Solana because of two compounding reasons:

• The Bitcoin halving, an event popular for sparking crypto bullruns, will occur in April. With all the liquidity flowing into crypto markets and Solana’s technical capacity to handle the increasing number of users, it will be one of the blockchains that will benefit most.

• The bullrun will be dominated by institutional money, and Solana is well-positioned to benefit from it.

However, it’s important to note that many SOL holders might be holding recovery profits, and this could spark uncontrolled sell pressure when they finally cash out. For this reason, Solana may fail to regain its previous ATH.

SOL holders’ conviction about Solana’s long-term potential will determine how this scenario will play out.

Final Thoughts

With all the pointers indicating a positive trajectory for Solana, it’s safe to conclude that Solana will likely be on the verge of a bull market in the coming years.

Solana’s unmatched technical capabilities will remain attractive to developers, especially as new users onboard into web3. Solana’s partnerships with institutional players will play a role in absorbing many of these users into its ecosystem. This and a strong community will catapult Solana to newer heights.

Whether or not Solana will achieve previous ATHs within the next few years is a matter of heated debate. Previously, capital injection from FTXs and other VCs contributed a lot to these figures, and now that most of them are out, Solana could fail to achieve these ATHs within the next bull run.

While Solana’s prospects look great, the network will have to address its technical limitations, such as security vulnerabilities, to maintain positive sentiment. Otherwise, Solana will still struggle with retaining new users.

Solana still stands out as a top-tier layer 1 blockchain with tremendous investment potential.