The Sun Also Rises: Why SOL is Ascendent
Contributed Opinion

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A few weeks ago, we asked readers, "are you ready for a long Alt Szn?" highlighting how Bitcoin's long reign as the top performing cryptoasset was showing signs of exhaustion, and that Ethereum and other assets could soon be ascendant.

Since we wrote that note, Ethereum has outperformed Bitcoin by 33%. Incidentally, this has helped contribute to significant outperformance for our Crypto and AI Leaders ETF (TKN:TSX), which has been overweight ETH, and is up over 7% since that note, compared with Bitcoin down 2.3%.

We got the ETH call right, but it's still TBD for the rest of the cryptoasset space. That's because this market is playing out somewhat differently than past cycles. Instead of a "rising tide lifts all/most boats," we now have a "rising tide allows one boat at a time out of dry dock before the tide recedes and we have to wait a while for the next one" (I will work on this metaphor — or maybe ask Chat GPT).

We've long held Solana is overdue for a rally. In the past week's note we wrote: "Solana looks primed to be the next big beneficiary of the digital asset treasuries (DATs) & ETF wave" A huge influx of capital from DATs and ETFs, all else being equal, could drive the price higher.

Our thesis was pretty simple. Bitcoin ETFs and popular DATs like Strategy Inc. (MSTR:NASDAQ) and more recently the ETH DATs like BitMine Immersion (BMNR:OTCMKTS) helped put a strong bid under ETH and BTC. Since the Bitcoin ETFs launched in January of 2024, Bitcoin is up over 150%. Since Bitmine converted to an ETH DAT, Ethereum is up over 90%.

ETH Bulls were keen to point out that between the DATs and ETFs, net buying was 27x as high as the net new supply.

Our 1-week call was right. Solana is up around 20% while Bitcoin is up 4% and ETH is up 6%. Will it continue?

Currently, SOL DATs represent only $1.5 billion out of the total $115 billion market capitalization of DATs, and SOL DATs hold 1.06% of total SOL supply, compared to BTC DATs (3.5%) and ETH DATs (3.1%). So there's room to catch up.

Thursday, Solana got a jolt after Galaxy announced that its Solana DAT had raised $1.65 billion, more than target, and doubling the size of the SOL DAT market overnight. We hear many more are coming. That augurs well for the would-be Ethereum competitor.

Tom Lee, Chairman of Bitmine has been on TV telling viewers that Ethereum is the blockchain for stablecoins and tokenized real-world assets (RWAs). That's mostly true (or at least it has been historically): friday around 63% of stablecoin market, equivalent to $175 billion, is hosted on the Ethereum network or its L2s. But it has been steadily losing market share to Solana and others.

Tom Lee is Ethereum's Promoter-in-Chief. Could anyone sound more bullish or more skillfully pump their bags? Enter Galaxy's Mike Novogratz, who said "hold my beer," getting on CNBC yesterday morning to make his case:

"Why Solana at this moment? The total transactions per second that Solana can do in a day is 14 billion. That's more than total transactions on equities, fixed income, commodities, and foreign exchange. So, you've got a blockchain that's fast enough, tailor-made to be the blockchain for financial markets. And you've got an SEC chair who's saying I want you to build on-chain."

Novogratz was saying that Solana's theoretical limit is 14 billion transactions a day — that it can handle the transaction volumes of major financial markets like stocks and bonds, and that it's probably inevitable that more assets move on-chain, especially with the regulatory all-clear. I agree with all of that. I also think someone watching this could read it as the Solana network is already doing 14 billion transactions a day, making it a more active market than those other ones — combined!

Anyway, if that's what we can come to expect from Mr. Novogratz, he may give Tom Lee a run for his money. Probably, both ETH and SOL holders benefit here. One must wonder if other blockchain networks have their own skilful spokespeople to translate their message to the mainstream. That, more than anything, could be the leading indicator of who's next.

Alex Tapscott is the managing director of the Digital Asset Group, a division of Ninepoint Partners LP. He is also the author of "Web3: Charting the Internet's Next Economic and Cultural Frontier." Sign up for his newsletter, Digital Asset Digest.