Summary The regulatory environment for cryptocurrency in the U.S. is favorable, but prices have stagnated, suggesting a shift towards fundamentals over hype. Memecoins are struggling. Solana's memecoin-driven growth seemingly peaked, and the network is now facing declining daily active addresses and transaction fees. Solana's stablecoin supply has surged since the start of 2024, but transfer volume share is declining, indicating a need for new applications to sustain growth. Despite Solana's strong prior performance and low valuation, I'm downgrading SOL to 'hold' until I see stablecoin transfer share growth return. Amid the backdrop of a newly announced 'Strategic Bitcoin ( BTC-USD ) Reserve' from the White House, lawsuit dismissals across the digital asset industry, and - perhaps most importantly - the OCC reaffirming that national banks are permitted to custody digital assets and engage with distributed ledgers, the regulatory setup for cryptocurrency in America has arguably never been better. Despite that, prices have languished. It would seem the long-awaited 'adoption' of digital assets by the United States government has been a sell-the-news event. And there is perhaps good reason for that. With seemingly every anticipated catalyst now baked in, my view is the native assets of public blockchain networks will begin to trade more on fundamentals rather than hope and hype. And in a market that seems poised to begin appreciating utility more than the casino-culture that drove most of the 2024 gains, Solana ( SOL-USD ) could come back down to earth. Memecoins Are Dead With the exception of perhaps Dogecoin ( DOGE-USD ), which has been immortalized by the Department Of Government Efficiency, memecoins appear to be dead in the water. YTD (Artemis) Year to date, the 'memecoin' segment of the digital asset industry is down 54%. Additional high-flier segments in 2024 are down as well. 'AI' coins, DePIN, and Gaming are all down by over 55%. What is holding up better this year? Real World Assets (or RWA), privacy coins (finally), exchange tokens, and ' store of value ' assets. It remains to be seen if this trend continues through 2025. But my original thesis when I launched the now-defunct BlockChain Reaction investor group through Seeking Alpha back in 2022 could be playing out this year. That thesis was that coins and tokens that actually serve a purpose through innovation will survive, while the overwhelming majority of tokens will die. For a brief period , it looked SOL would be the latter. But the emergence of memecoins Solana staged a massive comeback. Solana Network Trends After experiencing explosive growth through 2024, Solana's monthly average Daily Active Addresses peaked in November. At the beginning of last year, Solana's DAA average in January was just 695k. It trailed networks like NEAR ( NEAR-USD ) and Tron ( TRX-USD ); each of which were over 1 million already. But in January 2024, 'memecoin factory' pump.fun was launched on Solana and the rest is history. Daily Active Addresses (Artemis) Solana quickly started scaling users, and the network had the largest monthly average DAA figure in the market by September. Seemingly peaking with the US general election, DAAs on Solana topped out at 6.7 million in November. Even then-President-elect Donald Trump's memecoin launch just days prior to inauguration didn't generate a new DAA high in January, as the market suddenly became exhausted with the memecoin casino. In February, Solana's average DAA figure fell to 5.3 million. While still the top network in that regard, February was the lowest month for average DAAs on Solana since September 2024. Importantly, this is coming at a time when competing chains like Near, Tron, and Aptos ( APT-USD ) have all seen higher DAA averages in February compared with September. Monthly Fees (Artemis) Aggregate transaction numbers are still relatively high for Solana, but it's the fees that are screaming SOL's organic bid may face headwinds. While Solana was still the leader in fee generation for the month of February at $85.2 million, the network's lead over the other top networks is starting to fall. And keep in mind, Ethereum ( ETH-USD ) should serve as a warning about what happens to the price of a smart contract gas token when fees decline. With the memecoin narrative seemingly dead, what can Solana bring to the table for 2025 and beyond? NFTs? NFT Sales on Solana (CryptoSlam) That market really hasn't sustainably come back following the bust from the prior bull cycle. At $6.7 billion in DeFi TVL, Solana is indeed the second-largest chain for DeFi activity - though it remains a distant second to Ethereum. My view is stablecoins on the network are the tokens to watch. Stablecoin Footprint While you're still not going to get any argument from me that totally transparent blockchains are a personal security nightmare, I do think networks like Solana have a bright future in a world where stablecoins start eating into payment processing dominance from companies like Visa ( V ) and Mastercard (MA). Even companies like Stripe figure to be losers against Solana given their take rates compared to average transaction fees with SOL. For Solana, this is less than a penny per transaction on average. Meaning, sending dollars overseas with Solana is incredibly cheap and nearly instant. Solana Stablecoin Supply Trend (DeFi Llama) Perhaps unsurprisingly, Solana's stablecoin supply has increased substantially in the last 12-15 months. At the beginning of 2024, there was $1.8 billion in stablecoin supply on Solana. That figure is now $11.8 billion. And despite being down about 6% from the peak of $12.5 billion last month, Solana's stablecoin usage still punches above its weight: Share of Stablecoin Transfer Volume (Artemis) Solana claims approximately 5% market share of total stablecoin supply. Yet in January, Solana's share of stablecoin transfer volume was over 35%. That said, February and March are both showing large declines in transfer volume share. February's average was 7% and March is currently averaging 9%. While still well ahead of Solana's supply share, it is important to recognize that the network is losing transfer volume share to Base ( COIN ). Given Coinbase serves as an important on-ramp for cryptocurrency users and has the ability to incentivize usage of its own chain, I suspect Solana needs a new 'killer app' now that the memecoin gains have likely been made. Valuation Fees vs P/F Ratio (Token Terminal) Even with SOL falling in price by 35% year to date, Solana's circulating price to fee ratio has been heading higher since the middle of February. At 88x annualized fees, March 11th was the highest single day P/F reading since November. And again, this is coming with SOL's token price declining . Compared to previous cycles as well as competing L1 chains today, Solana's valuation is still quite low. But token holders and prospective buyers should keep in mind that unless we see fees return to levels seen in previous months, any increases in the price of SOL will likely be driven by multiple expansion rather than network utility. Closing Summary I still think Solana is a solid network. As a user, I think it performs well. It's fast and cheap. There is quite a bit to like. Looking at the surge in stablecoin supply on-chain, I'm encouraged that the network has solid liquidity for whatever comes next for Solana. But that's the issue that I have with a SOL position right now. Fast and cheap can only get you so far and there are a lot of blockchains that can make that claim. At the end of the day, these networks need usable applications that can bring sustainable growth to the blockchain. Otherwise, we'll continue to experience booms and busts based on whatever narrative is winning at any given time. For 2024, SOL was arguably the best way to play the memecoin casino. It was a bit like betting on the house rather than trying to play the games. I question whether there is still an appetite for the memecoin casino and I suspect we'll get a much better opportunity to go long SOL again in the future. I'm downgrading to 'hold.'
