Lightspeed Newsletter: Are traders rotating out of SOL?

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Howdy! 

I decided to dust off CoinGecko and dive into a market story this morning, but don’t take any of this as financial advice. 

That’s not me CYA-ing over liability concerns — I should just genuinely never be trusted on trading matters. I first bought solana in November 2021. I’m still very underwater on that particular investment. Anyways:

SOL approaches monthly lows around $140

The online crypto world loves to make light of cringey celebrity crypto moments as “top signals.” This time around, the anonymous typers may have a point.

Even as memecoin melodrama reached a fever pitch, SOL is down on the day, week, and month, sliding roughly 17% over a 30-day window, per CoinGecko. Solana fell more on the week than any notable layer-1 not named Avalanche.

And any B-list celebrities reading this newsletter should take heed: The bearish sentiment doesn’t appear ready to abate.

Perpetual swap funding rates turned negative on some venues like Bybit over the past few days, Adam McCarthy, research analyst at Kaiko, noted. 

Perpetual swaps, or perps, are a DeFi mechanism whereby traders can place options-like bets on the future prices of assets without an expiration date. If you want to make highly-leveraged trades on volatile tokens, perps are a good way to do it.

McCarthy said much of the price discovery for altcoins like SOL takes place in perps markets, so a negative funding rate — which essentially means short-position traders are paying a premium due to the market’s interest in shorting solana — would indicate less desire to speculate. 

This could all be a sign that traders are currently rotating out of SOL, McCarthy said. Ether, in particular, has traded more favorably than solana since spot ETFs for the asset earned the nod from the SEC in late May. 

“I would expect this trend could continue with traders focusing on larger cryptos (BTC and ETH) over the next few months as liquidity typically dries up over the summer and altcoins can be prone to volatility in lower liquidity environments,” McCarthy added.

SOL’s lethargy could also be partly driven by the continuing FTX fallout, as the massive post-collapse sell-off showed solana’s “vulnerability to external shocks within the crypto ecosystem,” Wintermute OTC trader Jake Ostrovskis told me. Still, “widely telegraphed OTC deals,” like Pantera’s FTX estate purchases that come with a four-year vesting period, remove some perceived risk, Ostrovskis said.

Ostrovskis also chalked up the recent price slide to solana’s lack of immediate catalysts, such as a spot ETF, as well as cooling memecoin activity. 

One coming tailwind for solana could be the implementation of the Jump Crypto-built Firedancer validator client, Meso CEO Ben Mills and Marinade core contributor Michael Repetny both told me. 

Firedancer is a major rewrite of the Solana validator client first made by Solana Labs, meant to make the network much more performant. If Firedancer can limit outages and greatly increase the transactions per second (TPS) Solana can handle, that could be a boon for the network. 

“Broadly, the tailwind is the innovation,” CoinShares analyst Max Shannon said, noting Solana’s product talent, narrative-generating memecoins, and developer community, alongside upgrades like Firedancer.

The full Firedancer upgrade is expected in 2025, with “pared-down” versions coming before then, Cointelegraph reported.

Several sources also pointed to a familiar crypto price catalyst — favorable regulatory rulings. 

The SEC flagged SOL as a security in a pair of lawsuits last year, so traders could perceive a change in regulatory sentiment as beneficial, McCarthy said.

— Jack Kubinec

Zero In

SOL’s funding rate is a good proxy for investors’ interest in taking long positions on the asset. A positive funding rate generally means traders are willing to pay a premium for long positions.

In the past three months, that’s been most of the time, as this chart from CoinGlass shows. One exception was in early May, when the asset was testing lows around $120. 

SOL’s funding rate has been trending down over the past couple weeks. Were solana to fall like it did in late April, it wouldn’t be surprising to see the overall funding rate flip negative once again. 

— Jack Kubinec

The Pulse

Generating and protecting the keys to a crypto wallet is a lot of responsibility for the average person. Many view the onboarding process, as it has always existed in Web3, as hindering the seamless user experience that most people have come to expect from traditional consumer technologies. However, that is changing.

TipLink, which launched in early 2023, offers a lightweight non-custodial wallet that allows users to transfer digital assets through a simple link. The project took a further leap forward last week with the announcement of its TipLink Wallet Adapter, which lets users connect to dapps with their Google accounts. As a result, it effectively eliminates the need for complex seed phrases and browser extensions. Adoption appears swift, with TipLink Wallet Adapter already integrating with top Solana dapps like Jupiter, Drip, and Flash Trade.

On social media, Circle co-founder and CEO Jeremy Allaire remarked, “Incredible. @TipLinkOfficial has transformed how I onboard people into using USDC and crypto.” Blockworks’ Byron Gilliam echoed this sentiment, stating, “Using @TipLinkOfficial’s web wallet feels as revelatory as using a mouse in 1984…will the use cases follow?”

Overall, the community’s reaction has been enthusiastic, with many praising TipLink’s approach and its potential to capture a fresh wave of newly onboarded Web3 users.

— Jeff Albus

One Good DM

A message from Ben Mills, CEO of Meso:

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