Are you selling your $ETH for $SOL? This is not such a strange question at all. There are more and more people that are actually doing this. Currently, there’s a serious outflow of $ETH. That’s despite the $ETH spot ETFs. Here are some more samples, The $SOL/$ETH chart is up by 380%. ETH/BTC is down 50% over the last 2 years.
Many Ethereum users are migrating to L2s. Ethereum is also inflationary again. So, something is up. But what is the reason $ETH is underperforming? My next question is, is it worth moving your $ETH to Solana? I’m going to look into this and find some answers.
What Is Going on With Ethereum?
Something is going on with Ethereum, but what is it? I just showed you a few fascinating and also stunning facts.
Ethereum has a couple of things going on that has led to some serious discussions. That’s something to pay attention to. So, let’s take a look at those discussions.
Inflationary $ETH
Ethereum recently became inflationary again. It was deflationary for a few quarters, but not anymore. Q2, 2024 saw the highest quarterly inflation rate since Ethereum upgraded to PoS. Remember the Merge in September 2022?
So, Ethereum mints more $ETH than it burns. As of today, that’s around 75k $ETH per quarter. Ethereum burns less due to its lower gas fees. Current gas fees are around 1Gwei. For Ethereum, that’s low.
Source: Messari
Gas Fees
So, talking about gas fees. They are currently low on Ethereum, at least to $ETH standards. However, that shouldn’t take the fact away that there are plenty of cheaper chains around.
One, obviously, being Solana. But there are plenty of other, fast and cheap L1s. For example, Sui, Near, Tron, BNB. Not to mention a whole basket of L2s. I still avoid Ethereum at almost any cost. Why would I pay $1-$3 or more for a transaction, when I can pay less than a cent?
Staking
There was always a concern that Lido would reach the 33% threshold of staked $ETH. This threshold of 33% is when an attacker can prevent the chain from finalizing. Well, here’s some good news. Lido’s staked $ETH has grown in absolute terms. However, its liquid staking market share has decreased. It went from 31.7% in January to 28.55% right now. That’s due to the competition of platforms like Ether.fi or Renzo. They have a combined share of 7% now. Considering that they weren’t even around in January, that’s impressive.
Currently, the Nakamoto Coefficient for Ethereum is 2. That’s due to Lido’s size. The higher this coefficient is, the more decentralized a network or project is. It was 1 for a while when Lido had 33% of the staking share all by itself.
The Ethereum Foundation
The Foundation recently found itself in the line of fire. It sent $100 million worth of $ETH to the Kraken exchange for sale. That’s 35k $ETH at current rates. However, there was no prior community notice.
To add fuel to the fire, it seems that the Foundation has this as a yearly budget. Aya Miyaguchi, a Foundation member, mentioned this in an X post.
This is part of our treasury management activities. EF has a budget of ~$100m per year, which is largely made up of grants and salaries, and some of the recipients are only able to accept in fiat. This year, there was a long period of time when we were advised not to do any…
— Aya Miyaguchi (ayamiya.eth) (@AyaMiyagotchi) August 24, 2024
So, don’t forget that there is an infinite total supply of ETH. Even though they haven’t resorted to a ton of issuance, they most certainly can.
Ethereum Spot ETFs
The spot ETF effect is less, or it should be. That’s due to the potential unlimited supply. They can “just make more” if too many institutions buy it. There won’t be a supply shortage on exchanges like there is for Bitcoin.
Ethereum also has decreased user activity. It also has an inflationary economy and lots more, as I mentioned. So, as you can see, plenty of food for thought. But how about Solana?
Solana’s Current State of Affairs
So, what is happening in the Solana camp? One big upset was that the CBOE withdrew the filing for a Solana spot ETF. Only a few days ago, I had a dedicated video on this topic. My question was, is the Solana bull run cancelled without a spot ETF? Well, the short answer is no.
There are plenty of other positive things happening at Solana. Not having an immediate spot ETF for Solana may have a smaller effect on its rally than you may think. I was already skeptical about such a $SOL spot ETF anyway. Solana doesn’t have a Futures contract in the US. Institutions prefer this tool for hedging their capital.
There’s also the fact that Solana has a reputation for their chain halting. So, let’s take a look at Solana’s downtime. During 2021 and 2022 Solana had indeed plenty of downtime. January 2022 was especially bad. However, since November 2022, there were only 2 outages. One in February 2023 and one in February 2024. So, it seems like the Solana devs got a grip on this.
Solana Memecoins
Solana has a lively memecoin pump going on. Back in December 2022, $BONK launched. That’s when $SOL hit lows of $8-$9. $BONK is still going strong and was one of the key factors in Solana’s incredible comeback. Solana memecoins have a combined market cap of $6.2 billion. That’s almost 10% of Solana’s market cap, which is currently at $66 billion. So, that’s a strong sector for Solana.
Solana is also working on becoming more decentralized. Its Firedancer upgrade will further enhance this. In contrast to Ethereum’s Nakamoto Coefficient of 2, Solana’s is at 18. In other words, Solana is much more decentralized, and this should even get better. Validator control is spread out over more validators, meaning less centralized control.
So, it seems that currently, Solana is having much better momentum in the market.
Source: Nakaflow
Should You Sell Your $ETH for $SOL?
Let’s not forget that Ethereum is still a solid and strong project. It still has a strong foothold in DeFi. The L2s play a crucial role here. It also still has the first-mover advantage.
With this comes a strong community. They’ve weathered quite a few storms already. This is not something you can quickly replace or build.
Still, Ethereum does seem to start to lose ground. It’s not necessarily one chain that is the ‘Ethereum killer’. In contrast, many fast and cheap L1s are gnawing away at Ethereum’s foundation. Solana may well be the leader of this wolf pack.
We also see more and more $ETH bridged from Ethereum to Solana. There’s less going in the reverse direction. This has been going on now for months. The last 3 months $258 billion went from Ethereum to Solana. $189 billion went the other direction. We see the same happen between L2s and Solana. L2s bridge more to Solana than in reverse.
So, should you sell your $ETH and buy $SOL? Well, not all your $ETH, but selling some and getting $SOL instead seems like a good move. What do you think?
Disclaimer
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