SOL THESIS
In this brief reflection, I present a concise view on why I expect Solana (SOL) to face relative downside pressure in December compared to other digital assets. I currently hold a short position initiated around the $235–240 range, viewing this as one of the year’s last major asymmetric opportunities. To be clear, I’ve also shorted other assets—Bitcoin (BTC), due to the widening gap between Michael Saylor’s entry points and prospective ETF approvals, and Ethereum (ETH), given its vulnerability to carry momentum lower if a broader downturn materializes.
The core argument is that Solana, which has performed exceptionally well as a liquid, large-scale asset in 2023, is now showing signs of fatigue after key tailwinds have either played out or are in the process of unwinding.
Key Drivers of 2023 Outperformance
Solana’s outstanding year-to-date performance can be attributed to three main factors:
1. Ecosystem Vibrancy and Transaction Speed:
Compared to its peers, Solana offered a livelier and more diverse ecosystem, with notably high throughput and rapid settlement times.
2. A Thriving “Casino” Culture Denominated in SOL:
The platform’s robust meme-coin economy thrived, as traders and speculators preferred to transact in SOL, strengthening demand and visibility.
3. Displacement of Traditional Flows Into SOL:
Many fund managers, disappointed by the lack of a meaningful ETH ETF catalyst, were effectively forced to look elsewhere—pushing flows into Solana as a promising alternative. This period of existential reallocation favored SOL dramatically.
Today’s Changing Landscape
As we move into December and beyond, all three of these supportive factors appear to be weakening. Each is increasingly vulnerable, offering ample room for downside as the competitive environment shifts and previous advantages erode.
1. Competitive Pressures from Emerging L1s:
Once unrivaled in speed and diversity, Solana now faces serious contenders like HYPE and ETH/BASE deployments. Recent Artemis flow data and other on-chain metrics indicate a notable siphoning of value away from SOL toward EVM-compatible ecosystems. We’ve seen this in tangible case studies: previously “untouchable” AI memecoins on Solana (e.g., GOAT, FARTCOIN, ZEREBRO, AI16Z) have halved in valuation, while new virtual and agent-oriented ecosystems elsewhere have flourished. Solana, long the dominant L1, now meets credible challengers whose traction suggests the moat is no longer secure.
2. Lack of a Meaningful Supply Test in 2024:
Unlike BTC or ETH—both tested by high-profile distribution events, unlocks, or regulatory milestones—SOL has yet to face a true “stress test.” Past volatility from major sellers (e.g., Jump) was short-lived. With Solana boasting substantial gains this year, many liquid fund managers might be tempted to lock in profits. Given SOL’s strong performance relative to other altcoins, there’s a logical incentive for funds to realize gains or reallocate capital into assets that appear undervalued or are just beginning their own growth trajectories. Compounding this potential sell pressure are the Galaxy auction’s SOL cost bases (~$80–100) and approaching unlock cliffs, which encourage strategic portfolio reshuffling and profit-taking.
3. Diminished Exit Liquidity Due to Emerging ETFs and Competitors:
The excitement once reserved for a future SOL ETF is diluted by the rise of “dino” coins and the potential for an XRP ETF. XRP’s recent performance may stem from speculation around its own ETF likelihood, U.S. tax rumors, and shifting regulatory sentiments. This creates an environment where SOL must compete for ETF-driven inflows rather than having them largely to itself. A more fragmented ETF landscape means fewer easy exits for SOL at current valuations.
4. Growing Complacency and Overconfidence:
Measuring sentiment is always tricky, but current bullishness around Solana echoes the complacency that preceded earlier corrections in other ecosystems. We see dismissive attitudes toward bridging to BASE or participating in newer ecosystems, despite evidence that users are doing exactly that. Former Ethereum stalwarts switching allegiances and aggressively calling for lower ETH/SOL ratios—even as ETH rebounds—further indicates that the once indisputable narrative around SOL’s dominance is now being challenged.
Conclusion: A Weakening Bull Case and Strengthening Bear Case
Over the coming month, the marginal buyer’s case for Solana appears to be the weakest it has been all year. The argument that future ETF announcements or continuing momentum will buoy SOL is less persuasive now that attention is more widely dispersed and alternative opportunities are emerging rapidly. At the same time, the case for profit-taking and rotating out of SOL into other sectors or assets looks stronger than ever. Elevated funding rates reflect ongoing attempts to push SOL higher, but these attempts hinge on now-fading catalysts and could unwind swiftly.
In essence, what once fueled Solana’s leadership may soon turn into reasons for investors to step aside, lock in gains, and look elsewhere—heightening the risk of underperformance as we close out the year.
Building on the previous thesis, new insights from on-chain flow data underscore the evolving pressure on Solana’s (SOL) long-term price dynamics. While some of my opponents maintain a pro-SOL stance, the latest evidence from net flows—particularly those drawn from Artemis dashboards—reinforces the notion that SOL’s once-consistent inflow advantage may be slipping away, thereby weakening the long-term fundamentals that once underpinned its outperformance.
Ebbing Flows and Shifting Ecosystem Dynamics
• Persistent Negative Outflows from ETH:
It’s undisputed that Ethereum (ETH) has seen roughly $7B of outflows YTD. Surprisingly, this hasn’t translated into a secure, sustainable inflow benefit for Solana. While SOL did capitalize on these displacements earlier, the environment now looks far more contested.
• Diminished Share of Positive Inflows:
Historically, SOL benefited from a “programmatic” style of inflows, grabbing a lion’s share—peaking at about 65% of positive net flows in a given month. Recent months, however, show its slice of the pie shrinking to around 15–20%. At the same time, competitors like BASE have seized upon these market conditions, making more substantial percentage gains in recent periods. The implication: As on-chain conditions heat up, SOL no longer dominates the inflow narrative. Instead, it’s one option among many vying for capital.
Price Action Under Scrutiny
Despite short-term catalysts and momentary bounces (e.g., following Grayscale ETF headline noise), Solana’s price performance remains lackluster relative to other assets. Evaluating multiple timeframes—from post-Trump win scenarios to recoveries after sub-$91K market events—SOL consistently emerges as the weakest link. This suggests that previously robust support from flows and sentiment is fading at the margin.
Fading ETF Hype and the Supply Overhang
1. ETF Headwinds:
While multiple applications signal interest in SOL-based products, the reality is that approval and actual product rollouts are far from imminent. The absence of any near-term ETF supply of marginal demand means SOL can’t rely on passive inflows or the kind of structural buying that often props up prices in assets with a clear regulatory roadmap.
2. Upcoming Emissions and Unlocks:
A 2% supply increase (25–30M SOL) is set to unlock in Q1 of 2025, adding a tangible overhang on price. With no strong source of incremental demand lining up—especially if ETF timelines stretch out—this new supply could weigh further on price, particularly if current holders grow increasingly impatient or opportunistic.
The Waiting Game Ahead
Market participants now face a crucial waiting period. Even if an eventual alt-season rally materializes in Q1, the next 2–3 weeks may bring frustrating chop and further churning of portfolios. The days of near-linear, month-over-month inflow dominance for SOL have passed, leaving investors to question whether its position as a leading L1 asset is still unassailable.
For now, the evidence points to a critical inflection. Without a clear narrative shift, SOL seems at risk of continued relative underperformance. Will the coming weeks’ volatility shake out weak hands and set the stage for a renewed upswing—or only reinforce that the conditions which once sustained SOL’s rally are no longer in play?