From UkuriaOC, CryptoVizArt, Glassnode
Executive Summary:
- Since the cycle low in Nov 2022, Solana has outperformed Bitcoin and Ethereum when measured from the lens of price appreciation and relative capital inflows.
- A sustained regime of positive capital inflows has resulted in a net liquidity increase of +$55B, providing significant tailwinds for price appreciation.
- Despite substantial profit taking and distribution, investors in Solana have not reached the degree of unrealized profitability (paper gains) which have historically aligned with longer-term macro topping formations, suggesting further room for growth across the cycle.
A Comparison of the Majors
Over the past 4 years, Solana has attracted both considerable interest and concern from investors and market speculators alike. Initially, the asset saw tremendous growth during the 2021 bull market but then faced significant challenges following the collapse of FTX, resulting in a severe overhang in supply.
After plummeting to a shocking low of just $9.64, Solana has made a remarkable recovery, recording an astonishing increase of +2,143% over the last 2 years. This impressive price performance has allowed Solana to outperform both Bitcoin and Ethereum on 344 out of 727 trading days since the FTX event, showcasing the substantial growth and demand for the asset.
The surge in price action has also attracted and enticed a substantial degree of fresh capital to the asset. We can utilize the relative Realized Cap change across Solana, Bitcoin and Ethereum as a measure to assess and compare the flow of capital into each network.
Since the Dec 2022 low, Solana has accrued a considerably larger percentage increase in capital than both Bitcoin and Ethereum across 389 / 727 trading days, underscoring its noteworthy growth in liquidity.
To assess momentum on the demand-side, we can track the capital inflow of new investors, which is referred to as the Hot Realized Cap. This metric measures the capital held by accounts that have been active in the last seven days.
When comparing the magnitude of new capital entering the asset between Solana and Ethereum, we can observe that new investor demand for Solana, for the first time in history, has overtaken Ethereum, highlighting its robust demand profile.
Notably, the stark uptick in Hot Realized Cap for Solana before the start of 2024 marked the upward inflexion point in the SOL / ETH ratio, with the influx of new capital driving growth.
Investigating SOLs Capital Flows
After establishing Solana's outperformance relative to the other major assets, we shall now examine the magnitude and composition of Solana’s capital flows.
By assessing the Net Realized Profit / Loss metric, we can visualize the Realised Cap's first derivative, the daily change in on-chain capital flows for Solana. When this metric is positive, it represents net capital creation (coins transacting in profit) or destruction when the metric is negative (coins moving at a loss).
We observe that Solana has consistently maintained a positive net capital inflow since early September 2023, with only minor outflows during this period. This sustained influx of liquidity has assisted in stimulating growth and price appreciation, achieving a remarkable peak inflow of $776M of new capital per day.
Increasing granularity, we can utilize our age breakdowns of the realized profit metric to evaluate which sub-cohorts are contributing the most to sell-side pressure. Here, we calculate the cumulative profit-taking volume by age since the start of the Jan-2023.
- 24hr: $3.1B
- 1d-1w: $13.7B
- 1w-1m: $14.0B
- 1m-3m: $8.5B
- 6m-12m: $15.7B
- 1y-2y: $8.2B
- 2y-3y: $8.2B
- 3y-5y: $3.5B
Notably, coins aged 1d-1w, 1w-1m, and 6m-12m are the significant contributors to sell-side pressure, each recording a comparable magnitude of profit. Together, they account for a substantial 51.6% of all profit realized, demonstrating a balanced distribution of market influence. This underscores the notion that Solana as an asset is seen as an investment opportunity for all denominations of investor profile.
During the same time period, the significant inflow of capital has allowed Solana to accrue over +$55B in USD liquidity, increasing the Realized Cap from $22B to an astonishing $77B.
Overheated?
In the previous section, we we assessed and evaluated the significant amount of profit taking and supply distribution occurring, thus, it becomes to prudent to assess how overheated the market has become.
For this, we can utilize the MVRV Ratio to define pricing bands which assess points of extreme deviations in investor profitability relative to the long-term mean. Historically, breakouts above 1 standard deviation have aligned with longer-term macro topping formations.
Presently, the SOL price is consolidating between the mean and +0.5 standard deviation range. This suggests the market is relatively heated, but suggests the potential for further room to run before the profit held by the average investor reaches its extreme band of +1σ, enticing a flurry of profit taking and distribution.
Summary and Conclusions
With the release of the new Breakdown metrics, we are able to analyze for the first time the behavior of investors during dynamic market periods for the Solana asset, providing significant colour into the mechanics of capital creation and destruction.
Solana’s meteoric recovery and subsequent price appreciation has been nothing short of remarkable, and has successfully accrued significant capital from a wide distribution of investors, ranging from Institutional to Retail oriented.
Disclaimer: This report does not provide any investment advice. All data is provided for information and educational purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.
Exchange balances presented are derived from Glassnode’s comprehensive database of address labels, which are amassed through both officially published exchange information and proprietary clustering algorithms. While we strive to ensure the utmost accuracy in representing exchange balances, it is important to note that these figures might not always encapsulate the entirety of an exchange’s reserves, particularly when exchanges refrain from disclosing their official addresses. We urge users to exercise caution and discretion when utilizing these metrics. Glassnode shall not be held responsible for any discrepancies or potential inaccuracies. Please read our Transparency Notice when using exchange data.
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