Why Solana Was Tumbling Hard on Thursday

What happened

Unfortunately for holders of cryptocurrency Solana (SOL -2.38%) on Thursday, guilt by association is a principle that often applies to financial assets as well as people.

The token fell by as much as 17% in the 24 hours prior to late afternoon that day before recovering to “only” a sub-4% loss while remaining under the psychologically important $10 price level. The key reason, fair or not, was Solana’s association with Sam Bankman-Fried and his notoriously unsuccessful FTX.

So what

Every day seems to bring more alarming news about Bankman-Fried and/or FTX and its affiliates. The FTX founder was one of the top boosters of Solana, which did the currency quite a bit of good before the exchange’s collapse. Now, of course, it’s about the most toxic association possible in the crypto world.

Compounding this, The Solana Foundation admitted in a mid-November blog post on its site that Solana had a fairly involved business relationship with FTX and affiliated entities such as Alameda Research. This included a roughly $1 million cash and cash equivalents position the Foundation parked at FTX and a 3.24 million share stake in the exchange’s stock. In turn, FTX held $1.2 billion worth of Solana in its portfolio.

But as evidenced by Solana’s bounce up from that 17% trough, the token still has many believers. Certain investors and pundits consider it to be the top “Ethereum killer,” as it’s quick and efficient and because it has a more consumer-focused approach that could rope in a wider user base than rivals.

Now what

The smoke and rubble from the FTX explosion still haven’t cleared, so regardless of whether you’re a Solana bull or bear, it might be wisest to skip out of trading it just now. The token certainly has many advantages over its peers. However, we still have to assess how its relationship with the failed exchange and its leader has and will affect its fundamentals.