Solana -10%. Altcoins Are Crashing - What is going on?

👇1-14) When the SEC approved exchanges' 19b-4 forms on May 23 to list Ethereum ETFs, futures traders front-ran the outstanding S-1 forms, which would seal the listing date. On June 3, we pointed out that speculative positioning relative to the price of Ether had reached an extreme and could be at risk of unwinding, which could prevent Bitcoin from making a new all-time high. Although ETH declined, futures positioning is still excessive - more altcoin unwinding is in the cards.

👇2-14) Last week was a pivotal moment for crypto, one of the most critical weeks of 2024. Crypto, especially altcoins, have sharply declined. The market poorly digested the massive token unlocks from Aptos $97m, IMX $51m, STRK $75m, SEI $62m, ARB $90, APE $18m, and UNI $90m—a total of $483m. Early investors and VC investors appear under pressure to cash out. These flows are dragging down BTC.

👇3-14) Bitcoin miners have started selling their BTC inventories, and ETH balances on exchanges saw a massive increase of $2.5bn, which was previously associated with potential selling pressure. Despite better inflation data, Bitcoin ETFs saw large outflows ($-660m 5-day avg.) as overall net flows across various segments (stablecoins, futures leverage, ETFs, etc.) saw net outflows of $-2.4bn—only the third weekly decline of net flows since the launch of the ETFs in January 2024.

👇4-14) Solana was instrumental in starting the altcoin rally in October 2023 and accelerating the meme coin rally in February 2024. But as SOL-USDT breaks critical trend levels and support lines, more downside pressure might be in the cards. Mid-last week, our trading signals received a sell signal for Solana (and also for Bitcoin), while other analyses could see SOL-USDT drop to $100.

Solana breaks the large triangle formation, next target $120 and $100

👇5-14) The highly anticipated ZKsync airdrop came and fell immediately -38%, indicating an immense interest in cashing out. This sent shockwaves through the crypto markets, as the ZKsync airdrop might have been the most farmed airdrop ever, which caused a debate around fairness and security during the last few days. Ethena’s tokenomics upgrade shocked investors, as $ENA -19% while $SEI -15% still suffer from major unlocks. These are some of the investors’ favorite altcoins.

👇6-14) In March 2020, the altcoin market cap (ex BTC, ex ETH, ex Stablecoins) was just $38bn and peaked at $927bn in November 2021 – roughly 18 months later for a roughly ~30x return. Most of the DeFi summer tokens peaked in April 2022, six months ahead of the peak in ETH, which was then driven by NFT minting. But this cycle is very different.

Altcoin market cap (LHS, purple) vs. Altcoin dominance (RHS, white)

👇7-14) When Bitcoin started its bull market in December 2022, altcoin dominance was 30% and gradually declined to 20% in October 2023, when the altcoin rally began. By then, the FTX liquidation overhang for smaller coins (including SOL) was removed as the sale would occur through weekly batches. Today, altcoin dominance is 17% (ex ETH, BNB, SOL) and continues to decline while the altcoin market cap moves in parabolic cycles (up and down).

👇8-14) Solana (SOL) also underwent the 1.16 upgrade on September 28, 2023, introducing a ‘gate system’ to gradually activate new network features and confidential transfers using zero-knowledge proofs to encrypt transactions. SOL also benefited from increased DApp usage, which increased NFT volumes on Solana due to compressed data stored off-chain. Cost-efficient and scalable solutions allowed for cheap minting, which was the birth of the Solana meme coin period.

👇9-14) TVL on DeFi bottomed in October 2023 at $38bn and increased to $109bn on June 6, 2024. All the top 10 protocols by TVL have seen single-digit declines in TVL during the last week, while specifically, all the top 10 Solana TVL protocols have seen double-digit declines in the previous week. Solana appears to be the ‘epi-center.’

👇10-14) In February 2024, when the Bitcoin rally with positive ETF inflows provided cover, the meme coin theme took off after projects like Floki saw substantial price increases partly due to their active communications and strategic burns—the launch of Sponge V2, which included new play-to-earn game features and staking mechanics.

👇11-14) BONK, PEPE, and Dogwifhat also took off in February, especially after basketball player LeBron James wore a fashionable hat resembling the Dogwifhat image’s hat. Weekly network fees on Solana increased from $2.5m for the week of February 26 to $24m for the week of March 18, 2024. Still healthy at $13m, they indicate much speculative activity.

👇12-14) The Solana-infused meme coin rally appears to have run its course as the large overhang from unlocks and net liquidity outflow ($2.4bn Week-on-Week) triggers liquidation levels. The highly anticipated ZKsync airdrop and Ethena tokenomics leave investors with a sour taste.

👇13-14) SOL volumes declined from $59bn for the week of March 18 to just $16bn, indicating a slowing interest in those momentum themes. Most meme coins have broken critical chart technical support, which could cause more unwinding. Hence, we would not buy the dip in those coins, despite expectations that Bitcoin can still make a new all-time high later in the year when inflation falls more forcefully.

Dogecoin - breaking support (most meme charts look the same)

👇14-14) We have been cautious about the altcoin space ever since Shiba Inu was the most traded token in Korea for seven consecutive days – at one point trading $3.5bn, almost 50% of the trading volume for all Korean listed stocks in early March. As altcoin volumes in Korea crashed, so did the funding rates, and this caused Bitcoin ETF flows to slow down. It has come as a surprise that Bitcoin is failing to rally despite weak inflation data, but the Ethereum (see below) and altcoin crash might have been predictable.

Ethereum (LHS) - over-positioning is causing prices to crash ($bn, RHS)