Key takeaways
- The collapse of the FTX crypto exchange is having a ripple effect on the entire crypto industry; casualties pile up as the bankruptcy proceedings begin.
- Sam Bankman-Fried (SBF) supported the Solana blockchain and used it to build his own decentralized exchange.
- While Solana was once poised to be a threat to Ethereum, the blockchain has seen SOL, its native token, plummet in value due to macroeconomic factors and scandals that have brought down the entire crypto ecosystem.
It doesn’t feel like it was so long ago when we saw Sam Bankman-Fried on the cover of so many magazines touting his plan to donate the majority of his wealth. Many folks considered SBF to be the ultimate “Crypto Robin Hood.”
SBF was also pushing many other projects in the cryptocurrency space. One of those secondary ventures he promoted was the Solana blockchain.
The Solana blockchain is known for offering a platform with quick transaction times and inexpensive fees. Solana was supposed to be an “Ethereum killer” but that hasn’t happened, and it won’t.
Solana saw its native token SOL drop by at least 30% at times after the FTX collapse since SOL was Alameda’s second-largest holding. We’ll look at the Solana cryptocurrency outlook in the wake of the FTX bankruptcy.
What happened to FTX?
Before evaluating the Solana, we must address what happened with FTX. The crypto exchange had a valuation of $32 billion at the start of 2022 with a slew of high-profile celebrity endorsem*nts. Most people in the crypto community thought it was too big to fail.
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When a report revealed that FTX didn’t have the proper funds in reserves, customers rushed to cash out their investments since they were rightly worried it would be the next crypto platform to go bankrupt. In turn, this led to a liquidity crunch.
When it came out that Binance, a rival crypto exchange, wouldn't purchase the exchange in a last-ditch effort to save it, FTX had no choice but to file for bankruptcy protection on November 11.
Bankman-Fried was often hyping up Solana. The bankrupt exchange even had $982 million in SOL, the native cryptocurrency of the Solana blockchain. There were fears that FTX and Alameda Research would start unloading SOL tokens to raise liquidity.
The FTX meltdown has had a significant impact on the overall cryptocurrency space. Investor confidence is low. Investors concern also grew around projects associated with SBF and FTX given the possible fallout from the bankruptcy proceedings.
What’s the connection between SBF and Solana?
During the summer, SBF conducted an exclusive interview with Fortune magazine. In it, he shared that he felt Solana was the most underrated token. The story mentioned how SBF’s counterintuitive investing strategy would either build him an empire or end in a disaster.
The latter happened and SBF currently sits behind bars.
SBF hyped Solana and the network for years, both personally and professionally. When Solana Labs raised $314.2 million in the summer of 2021, Alameda Research, a crypto hedge fund founded by SBF himself, invested heavily.
SBF also started building a decentralized exchange called Serum on the Solana blockchain. It was known to many in the crypto space that SBF had invested plenty of money through his companies in SOL tokens.
While SOL was Alameda’s second biggest investment, the trading firm also actively invested in other projects on the blockchain. Alameda invested in Serum (SRM), MAPS (MAPS) and Ogyxen (OXY) via the Solana blockchain.
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How did FTX impact Solana?
After plenty of speculation, the team at Solana released a blog post that addressed the financial ties between Solana, FTX and Alameda Research. The Solana Foundation confirmed that they had about $1 million worth of cash or equivalent assets on the FTX platform as of November 6.
This was around the time when FTX had to pause customer withdrawals since it became clear that they didn’t have the funds. These funds are now stuck on FTX and are pending the results of what happens next with the bankruptcy procedure.
The Solana Foundation reported that these funds are equal to less than 1% of the funds, so it’s not a dire situation.
According to Solana Compass, the Alameda Research liquidators now possess hundreds of millions of dollars worth of SOL. Based on the report, Alameda Research previously had control of 48,636,772 SOL tokens, which are worth about $643,000,000 now.
However, the blog post from the team at Solana mentioned that FTX and Alameda purchased over 50.5 million SOL from the foundation. They wrote that a significant portion of the SOL would be locked up in monthly unlock schedules until 2028.
Are you thoroughly confused? It’s impossible to speculate what will happen with these SOL tokens during the bankruptcy proceedings. Additionally, the article that Solana released also stressed how the FTX collapse didn't impact the security of the blockchain.
What happened to Solana?
Solana, along with every other major cryptocurrency token, has been hit hard by macroeconomic factors impacting the entire space, negatively.
Last November, the price of ether peaked at nearly $4,900, while bitcoin hit almost $69,000. Then it became clear that inflation was soaring, which meant that the Fed would have to raise rates to cool off the economy.
Instead of acting as a hedge against inflation, it turned out that cryptocurrency was another speculative asset that would fluctuate based on macroeconomic conditions.
The price of SOL is hovering around $14.00 as of mid-December, which is down over 91% for the year and drastically lower than the all-time high of $259.99.
What’s next for Solana and Crypto?
Numerous factors are at play here, and many crypto enthusiasts are bracing themselves for an extended crypto winter.
For starters, we have to see how the bankruptcy proceedings play out. Then we also have to wait and see to determine the impact of the rate hikes from the Fed, working to cool down inflation.
We can expect two things for Solana and crypto in general.
More price volatility
It’s safe to say that as more news comes out about the fallout of the FTX bankruptcy, there will be further volatility and price swings. The fallout will send waves throughout the crypto space for the next year or so.
We don’t expect crypto prices to stabilize in the near future.
Further regulations
We can't ignore the importance of regulations. The White House, SEC and even the Fed have emphasized the importance of regulating crypto. Now, many within the industry are asking for them as well, which would not have been the case even six months ago.
Michael Saylor, an advocate for bitcoin, recently spoke on this topic after the FTX debacle, stating, “The future of the industry is registered digital assets traded on regulated exchanges, where everyone has the investor protections they need.”
We don't know what these crypto regulations will look like, but we do know that this space desperately needs additional scrutiny.
How should you be investing?
Investing in digital assets is risky, even during the best of times. The last year or so has shown us that investing in crypto comes with a great deal of uncertainty that is not for those unready to handle the unprecedented volatility.
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