Author: Reza Jafery, Decrypt
Translation: Felix, PANews
The Solana token SOL has risen by over 24% in the past 24 hours, reaching a high of $45. It's worth mentioning that SOL has risen nearly 80% in the past 30 days, leading the recent surge.
Analysts believe that the recent surge in SOL is a typical short squeeze (Note: also known as a forced short, short squeeze, mainly due to market supply and demand rather than fundamental changes). However, one voice driving the rise of SOL believes that Solana's surge is due to its excellence similar to the Ethereum blockchain, and even the potential to replace Ethereum.
Due to the deep connection between FTX and Solana, Solana was particularly hard hit by the FTX crash. FTX has invested in Solana and many projects built on Solana. For example, FTX and the Solana Foundation jointly created Serum, a DeFi protocol that no longer exists. At its peak, Serum was a pillar of the Solana ecosystem DeFi.
The Solana Foundation also holds millions of dollars' worth of FTX shares and FTT tokens. When FTX fell, Solana suffered losses on two fronts: a shrinking treasury asset size and SOL held by FTX being transferred to liquidators, leading to market selling pressure on SOL. As SOL rose, the value of the crypto assets held by FTX also increased by nearly $1 billion.
However, due to ongoing developer support (with developer numbers growing by over 40% annually) and an increasing number of Solana believers refusing to shut down the protocol, the debate over Solana's competition with Ethereum has become one of the most intense topics of discussion in the crypto community.
Fundamentally, supporters of Solana argue that its technology is faster, more scalable, and has lower usage costs than the Ethereum blockchain.
SOL Leading ETH in BTC Gains
Bitcoin is the leader in the crypto market, so traders often measure token prices against Bitcoin rather than the US dollar. The reasoning is that if the gains cannot surpass Bitcoin, it's better to invest in Bitcoin.
Recently, the price trend of SOL/BTC has been much more attractive than ETH/BTC. In fact, many have noticed that the price of ETH is weak compared to BTC.
Traders and speculators are also hinting at the potential that Solana's past is Ethereum's future, as the situation with ETH's past and SOL's present is quite similar.
From April 2020 to November 2021, the price of Ethereum rose from $100 to $4700. This happened after ETH went through its first bear market cycle. During this time, many thought ETH would disappear like most ICO projects at the time.
But they were wrong. Developers flocked to the Ethereum blockchain, launching tokens and protocols, maintaining market attention and trading volume throughout the bear market. ETH's performance was stronger than ever and was one of the best-performing tokens during the 2020-2021 bull market.
Now, a similar situation is seen in Solana. Due to its close relationship with FTX, many thought Solana's peak had passed after the FTX crash. The NFT project DeGods even left Solana and migrated to the Ethereum network.
Despite this, developers continue to build and deploy products on Solana, demonstrating resilience and attracting investors as a potential short squeeze.
Patrick Felder, founder and CIO of Prismatic Capital, explained: "All factors are enough to drive a sharp rise in SOL. After the FTX liquidation agency announced the timetable for selling assets, everyone either shorted SOL or discussed shorting SOL." Patrick Felder primarily invests in ETH but is increasingly allocating funds to SOL.
Patrick Felder stated that all these shorts have created a market imbalance, which SOL believers are taking advantage of. "In terms of price, things are changing too fast. Solana has a cult-like community, so many people are accumulating SOL for the next bull market. This is a typical short squeeze."
Solana Developer Community Continues to Grow
A key factor in Solana's resistance to short sellers is its fervent developer community, which not only did not defect after FTX, but continues to grow. According to data from RockwayX, a European venture capital firm investing in Solana, the number of developers on the Solana chain has actually surged by 83%. Even Ethereum co-founder Vitalik Buterin has publicly expressed support for the Solana developer community.
The number of people developing on Layer1 blockchains is a key indicator. In the crypto space, developers usually do not need to be paid to develop on blockchains, but Solana has to pay. This is because developers are unsure if the blockchain can continue to operate and have to take the risk of learning Solana's specific development language.
According to Electric Capital's developer report, Solana currently has nearly 1000 full-time developers; in comparison, Ethereum has nearly 6000.
Similarly, Solana's market value is only 8% of Ethereum's market value, so Solana still has a long way to go for long-term success. Despite the short squeeze in the market, FTX has not yet emerged from its difficulties. Solana still needs to deal with the liquidation of FTX assets. In the FTX estate, there are currently $120 million worth of SOL, which will undoubtedly be liquidated as the bankruptcy proceedings progress.
However, those bullish on Solana believe that once this issue is resolved, Solana's situation will improve.
Related reading: Frictionless Capital co-founder refutes bearish sentiment: Why I still believe in Solana?
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