Fallen crypto tycoon Sam Bankman-Fried bet big on Solana. It is working its way back from the collapse of his empire.
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Having impressed the FTX brain trust, tokens for this Ethereum rival were concentrated in the wrong portfolio at the wrong time. But the technology that won over Bankman-Fried is impressing investors anew.
One of the biggest casualties of the collapse of the FTX crypto conglomerate a year ago was sol, the native token of the Solana
SOL
FTX absolutely adored the coin and invested heavily, accumulating a stash of approximately 65 million sols that was worth $2 billion a year ago, right before Sam Bankman-Fried’s high-flying empire crashed and burned. By the end of the year, that had turned into $650 million as the sol price crumbled to $9.96, down from its November 2021 record of $259.96, according to CoinGecko.
Bankman-Fried liked Solana largely because it is faster at processing transactions than rival Ethereum
ETH
Since early September, sol has more than doubled from a low of $17.60 to a recent $39.49. A confluence of positive developments has lifted it far more quickly than the overall crypto sector, which is up 28% in the same period led by bitcoin with a 35% jump.
Solana’s speed is useful for applications that require frequent low-value transactions, such as gaming and decentralized finance. That makes it a candidate to become the No. 3 blockchain after Bitcoin
BTC
“You have, Bitcoin, which is by far the most decentralized network, and then Ethereum, which I would argue is less decentralized than Bitcoin, but can do some things that Bitcoin cannot,” says David Lawant, head of research at prime crypto brokerage FalconX. “Then you have Solana, which is less decentralized than Ethereum, at least in some regards, but it allows for this cheaper and faster network.”
The cryptocurrency market has been slowly recovering from the devastation of 2022, which culminated in the failure of FTX after a string of bankruptcies that pointed out flaws in many structures among blockchain and related companies. Down more than 60% in value from its November 2021 high of $3 trillion, the market’s collapse was a bit less harmful to its blue chips, bitcoin and ether, which were relative safe havens for investors who still wanted to own crypto, according to Cosmo Jiang, portfolio manager at Pantera Capital, a blockchain investment firm in Menlo Park, California.
With crypto market sentiment improving, investors are turning their attention to second-tier coins they argue are oversold, according to Jiang. Regarding sol’s gains, he points to a string of encouraging announcements coming out of the annual Solana BreakPoint conference held in Amsterdam this week.
These included the start of live testing of Firedancer, a second validator network for Solana that could enhance speed on existing hardware and add network resiliency; integration with the Google Cloud BigQuery data warehouse, which can help programmers find blockchain information quickly; and news that Amazon Web Services is now provisioning Solana nodes, meaning validators can rely on the infrastructure giant instead of owning their own computer hardware.
Another positive factor is that Solana has improved its network operations, with days of downtime or impaired performance falling to just one this year from 14 for all of 2022. Much of the problem was related to congestion linked to non-fungible token issues, says Jiang, and was resolved by limiting transactions in certain situations.FTX still owns its sols and is likely to sell them, but most traders believe the large bankruptcy-related liquidation is no longer weighing on the market, especially as some of the holdings are subject to lockups that extend for several years. Lawant of FalconX thinks individual investors have begun to accumulate the token and there is evidence that traders with short positions have been squeezed during the recent run up.
Spencer Hallarn, a derivatives trader crypto hedge fund GSR thinks sols’ impressive gains, should be looked at as a bellwether for a market that may be emerging from its two-year crypto winter. Improving chances that the U.S. will finally approve exchange-traded funds based on the spot price of bitcoin are likely to increase demand and interest for all digital assets. He also points to the relative strength of cryptos during international hostilities in Ukraine and Gaza.
“I think that kind of bolsters this digital-gold narrative around bitcoin,” he said, referring to the idea that the token can serve as a store of value. “Historically, once bitcoin and ether grab a foothold to climb upward, altcoins start to run ahead of those two assets.”
In fact, Sol is far from the only altcoin to have seen a big surge. Stacks
STX
Additionally Chainlink
LINK
“I feel like a lot of this excitement around Solana is prospective,” says Lawant. “How far can the rally go based on narrative expectations? That’s the biggest question to answer now.”
