Is the Solana hype bubble coming? Trader reveals 3 major reasons: Why short SOL

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Here are some brief thoughts on Solana, mainly discussing the reasons why I think Solana may underperform other assets in December (I believe this trend has already begun, but will continue).

I opened a short position at ~$235-240 and believe this is the last great asymmetric opportunity of the year. However, it should be noted that I also hold short positions on other assets (such as BTC, as the gap between Saylor's buying price and ETF continues to widen; at the same time, I believe that if Ethereum falls, its downward trend may continue for a longer period).

In summary, Solana's performance this year has not yet truly been tested and its main driving force is being depleted (or in the process of depletion).

Why will $SOL perform poorly?

In my opinion, the real factors that have contributed to Solana's outstanding performance as a scalable asset YTD this year include the following:

A more active and diverse ecosystem than competitors, with fast transaction speeds;

The most powerful 'casino' environment has attracted many meme participants who are willing to use $SOL as the pricing unit;

Mid-year capital inflows - I believe that many fund management companies and large Liquidity participants have been squeezed out due to the lack of enthusiasm for Ethercoin ETF, and they have experienced some kind of 'existential crisis' in future asset allocation.

Today, I believe that the above three major driving forces have all weakened and are extremely vulnerable to shocks, with still a large amount of excess foam that needs to be reduced. Here are my specific reasons:

As a leading L1 with a focus on speed and diversity, Solana is facing strong competition from HYPE and Ethercoin/Base.

The rise of these threats has been unexpected and has not been effectively addressed.

The following figure shows the traffic data of Artemis. You can choose to observe it within a time range of 1 week or 1 month. This is the most significant transfer of Solana funds to EVM so far this year, which is not only reflected in the traffic. We can also observe it from popular industry cases, such as the meme coin sector in the AI industry - $GOAT, $FARTCOIN, $ZEREBRO, and $AI16Z, which were previously considered top projects, have all halved their valuations during this period, while $VIRTUAL and the proxy ecosystem have flourished in the same period.

Image Source: Artemis

In addition, I believe that Solana has not encountered a real competitor in the L1 industry for a long time. Although the HYPE is still in the early stages, its pursuit of democratizing ownership and the attractiveness demonstrated by the team's strength cannot be ignored in the short term.

In 2024, Solana has not yet experienced a real supply shock event

In contrast, other major assets have been severely tested, such as the MTGOX incident and regulatory issues in Germany for BTC, as well as the launch of ETF for Ethercoin. Solana, on the other hand, has been almost unaffected, with only a brief Fluctuation during the Jump dumping period this summer, which was quickly overlooked as the subsequent larger pullback of Ethercoin diverted attention.

Solana has been the best-performing period in the past few months as a high-beta asset for BTC, capturing most of the capital flow from Ether's hands (this trend has gradually dissipated), while attracting attention far beyond the mediocre and unattractive small cap altcoins.

In the mobile fund industry, there should only be two options for GP to achieve cash distribution within the 2024 fiscal year:

Distributed by percentage of realized gains;

Distribute based on the percentage of unrealized gains, but adjustments must be made on the basis of the high water mark Benchmark from the previous year.

In any case, given Solana's outstanding performance last year, I believe that asset management companies would tend to dump $SOL, possibly due to the following reasons:

As the best performing asset of the year, it has achieved a larger increase;

Believing that the previously underperforming parts of the investment portfolio still have untapped upward potential, it is worth holding and observing other altcoins that have shown trend strength in the H1/H4/1 time frames to capture profits.

In addition, this trend is also driven by the popularity of Galaxy auctions ($SOL cost Benchmark at $80-100). Fund management companies participating in auctions can profit in the following ways:

For example, dumping one-third of the Lock-up Position supply purchased near historical highs, and then "reclaiming" these Tokens in the first unlocking event in March of next year, thereby gaining price differentials in nominal value.

The exit Liquidity of $SOL ETF weakened due to the rise of old-school Token and the potential impact of XRP ETF

The performance of XRP is driven by two main factors:

It is considered the asset most likely to launch an ETF product after Ethercoin, closely linked to Bitwise;

Rumors about the United States reducing the capital gains tax on Cryptocurrency to 0%.

Considering the history of XRP (as one of the earliest encryption assets) and the resignation of SEC Chairman Gary Gensler, it cannot be denied that it is diverting the market share that originally belonged entirely to $SOL, even if the probability of launching XRP ETF is equal to or slightly lower than $SOL.

Self-satisfaction emotion

Although this kind of emotion is difficult to quantify accurately, intuitively, I believe that the arrogance of Solana has reached a bottleneck, contrasting with the situation a few years ago - when Ethercoin led $SOL because of its dominant position, and this position was like an impregnable moat.

Here are some typical examples

The comparison between 'network expansion vs L2' and DRIFT vs HL demonstrates a 'no-error' attitude.

Many people claim that 'no one would want to go from Solana Cross-Chain Interaction to Base', despite clear counterexamples;

Some users who once firmly supported Ethercoin completely capitulated on Ethercoin a few weeks before it rose 35%, even suddenly predicting a target price of 0.027 Ethercoin/$SOL at an extremely low level.

Summary

In the next 30 days, I believe that the attractiveness of Solana to marginal buyers is at its weakest point this year (obviously insufficient compared to ETF Liquidity and Ethercoin; the attention of altcoins is more dispersed than before), while the selling motivation of marginal sellers is at its strongest point (taking profits; users who have gained huge profits through memes or holding $SOL choose to dump and cash out to preserve value).

In addition, as longs try to push prices up, financing costs continue to remain high, and this upward movement is completely driven by leverage, which has been reflected in recent (but brief) historical highs.

Image Source: Artemis

[Disclaimer] The market is risky, and investment should be cautious. This article does not constitute investment advice. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific situation. Invest at your own risk.

This article is authorized to be reprinted from: "Rhythm Blockbeats"

Original author: The Giver

The article 'Is the Solana bubble coming? Traders reveal 3 reasons: Why short SOL' was first published in 'encryption city'.