Behind the Strength of SOL: A Deep Dive into Its Market Performance

Recently, the strong performance of Solana (SOL) has attracted widespread attention in the market. This article will analyze the performance of SOL from three unique perspectives and discuss its future trends.

Consensus arises from an upward trend, faith is born from a downward trend

By comparing the historical trends of Ethereum ( ETH ), we can better understand this viewpoint. ETH performed exceptionally well in the last bull market, with an increase of nearly 60 times compared to the low point in 2018. However, prior to this, ETH fell from its high of $1,440 in 2017 to $81.79, a drop of 94%. Similarly, SOL dropped from $259.9 to $8, a decline of 97%.

Such extreme market volatility often triggers large-scale sell-offs, nearly emptying the accounts of all investors. This not only happens with ETH and SOL, but Bitcoin (BTC) has also experienced declines of over 90% multiple times. This process effectively eliminates floating chips, leaving behind steadfast holders.

As prices rise and new assets are continuously created, external buying begins to enter the market, at which point investors will pay more attention to changes in fundamentals. Price increases are usually driven by two types of people: first, investors who have already held and are continuously adding to their positions, and second, new entrants who buy at support levels or during an uptrend. When all potential buyers in the market have entered and are holding long-term, the market may enter a sideways consolidation until the next key event occurs.

The Importance of Asset Creation

Both bull markets for ETH were accompanied by asset expansion, such as the ICO boom and the DeFi boom, which locked in a large amount of liquidity. SOL also experienced a similar process, with the success of BONK and the introduction of the Depin concept expanding its user base and creating new assets.

The success of a public chain depends not only on technological leadership or the completeness of its ecosystem, but more crucially on its ability to create profit effects and new narratives. In contrast, ETH suffers from low capital flow efficiency due to high Gas fees, coupled with a large number of loyal holders and a relatively stable chip structure under the PoS mechanism, and may need to wait for the next key event (, such as a significant decrease in Gas fees or the approval of an ETF ), to trigger a new round of growth. However, due to its large potential buying power, once a key event occurs, its explosive power could be quite remarkable.

The Impact of Chip Structure

The market generally believes that a more evenly distributed chip distribution is better, while a highly concentrated chip structure is seen as a disadvantage. However, the reality may be just the opposite. The more evenly distributed the chip structure, the more factors market participants need to consider, which may actually make it more difficult to push prices up.

The key to determining price trends lies in potential buying power, rather than the distribution of chips held by current holders. When holders remain stable, it is easier for prices to form an upward trend. Taking ETH as an example, during the last bull market, the staking lockup of ETH2.0, significant purchases by institutional investors, and the lockup in DeFi almost locked all floating chips, creating a price increase potential of up to 60 times for ETH.

The current situation of SOL is similar to that of ETH. Certain major holders collectively hold about 55.8 million SOL, accounting for 13% of the total circulating supply. This concentration of chips may support SOL's strong performance in the short term. However, once these locked SOL are restored to circulation, its market performance may change, similar to the situation with ETH after the Shanghai upgrade when funds became withdrawable.

Overall, the strong performance of SOL is supported by multiple factors, including market cycles, asset innovation, and chip structure. Investors should closely monitor changes in these factors to better seize market opportunities.