Q9 Markets: Rubber SOL

26th November 2021

Q9 Capital: www.q9capital.com

• Positive week in spite of possible interest rate hike
• Tether crashes in India
• Solana continues its monumental ascent

Solana, Ethereum, Bitcoin, et al ended the week on a positive after trending lower during mid-week. Major coins were trading flat-to-negative early Wednesday as the dollar reached a fresh 16-month high in the currency markets following the reappointment of Jerome Powell as Chairman of the Federal Reserve, but have since recovered. The appointment reinforced bets that the central bank would hike rates faster to control inflation, which remains Here, There and Everywhere.

November is turning out to be a banner month for crypto coins and crypto start-ups with more than $3bn in venture capital funding, bringing the total to $18bn in 2021. This amount is nearly five times more than what crypto start-ups received in 2020, with the largest crypto venture fund (Paradigm) at $2.5bn launching last week.

The bullish sentiments of institutional investors also remains unwaivered as BTC and ETH investment products attracted weekly inflows at $114.4 million and $12.6 million, respectively, according to CoinShares’ latest fund flows report for the week ending November 20th.

Funding rates are now creeping up again as more market participants use leverage in the hope of major cryptos trending higher into the end of the year.

Fixing a Hole

You Never Give Me Your Money

Tether (USDT), the world’s largest stablecoin by market value, traded volatile on Indian exchanges amid renewed regulatory uncertainty. On Tuesday, USDT crashed on prominent local platforms, hitting as low as ₹60 on the Mumbai-based WazirX exchange while maintaining the 1:1 peg with the dollar on western exchanges. Some traders took advantage of the mispricing and bought Tether at a discount, with an arbitrage opportunity in buying USDT at Rs. 60 to sell it at the peg or premium.

Here Comes the Sun

SOL is having its moment in the sun during the frenetic ascent of cryptocurrencies — shooting up the charts to be the fourth-largest crypto with a market cap of $63 billion, and rising over 9,000% since the start of the year. It is now being talked about as a potential long-term competitor with Ethereum. Demand for the upstart is high and institutional investors purchased $43 million worth of SOL just last week.

Compared with other dominant coins, Solana is relatively young. The idea for Solana was first published in 2017 by developer Anatoly Yakovenko, and SOL debuted last year. The blockchain operates on both a Proof of History (PoH) and Proof of Stake (PoS) model. PoS allows validators to verify transactions according to how many coins they hold, while PoH allows for those transactions to be timestamped and verified more quickly, Yakovenko wrote in the Solana white paper.

The “Fab Four”

Solana — like ETH, ADA and DOT — is a platform for decentralized finance applications and other smart contracts. Effectively people are building entire automated companies, marketplaces and ecosystems where you can borrow, trade, lend and leverage crypto assets. SOL has been soaring on the promise that, unlike Ethereum, transactions on Solana will be cheap and ultrafast. In other words, the project is rejecting the premise that blockchains have to be costly, slow and inefficient.

Come Together

Digital communities are a crucial component of developing a network and Solana is currently bringing together an incredible entourage of investors, users, developers and visionaries. There are currently over 400 projects being developed on Solana and the protocol has received sizable investor attention over the last quarter. In many respects, the price discovery has been healthily fueled across various sectors — a $100M gaming fund, Brave announcing native integration on the web3 front, $100M investment from Reddit for Social Media, $40M raised by Neon Labs to bring EVM infrastructure over, pplpleasr launching NFTs on Solana, FTX building out an NFT integration, and, of course, there’s Solana’s DeFi ecosystem that has seen a 4x TVL expansion since September.

Helter Skelter

SOL, 1 Year

Any Time at All

The core innovation that underlays the Solana Network is Proof of History, and is exactly what the name suggests — a proof of historical events, or a clock for the blockchain. Utilizing Proof of History creates a historical record that proves that an event has occurred at a specific moment in time. Whereas other blockchains require validators to talk to one another in order to agree that time has passed, each Solana validator maintains its own clock by encoding the passage of time in a simple SHA-256, sequential-hashing verifiable delay function (VDF).

It’s pretty technical stuff but here is a short explainer of how it works.

Effectively what this does is enable Solana to run incredibly quickly. SOL has a theoretical peak capacity of 65,000 transactions per second. Although this figure is supported by a testnet rather than real-world implementation, even at-scale speeds of 50% of Solana’s testnet capacity would be a ground-breaking achievement for the blockchain space.

In terms of today’s transaction speeds, 65,000 transactions per second is around 10,000 times faster than Bitcoin, 4,000 times faster than Ethereum, and 35 times faster than Ripple — even around 2.5 times faster than Visa. The protocol is theoretically designed to scale with Moore’s Law, doubling in capacity every two years with improvements in hardware and bandwidth. In other words, as computers get faster, so will Solana.

Revolution

Tomorrow Never Knows / The Long and Winding Road

Solana is a brand new project and still has a long way to go until it proves itself. The blockchain recently came under scrutiny after the network suffered a major outrage of more than 17 excruciating hours in September. The network simply couldn’t process any transactions and the people behind its blockchain later blamed something called “resource exhaustion”. While any massively growing technology is bound to run into bandwidth constraints, the outage provided an opening for critics of the fast-growing network. The coin’s value could become a rollercoaster if outages become a common occurrence.

However, the nascent project has many high profile backers and proponents. Sam Bankman-Fried, the 29-year old that heads up the FTX exchange, believes Solana is better than Ethereum as it’s one of the few blockchains with a plan to accommodate mass adoption. “Solana is one of the few currently existing public blockchains that has a really plausible roadmap to scale millions of transactions per second at you know, fractions of a penny per transaction, which is a scale that you need for this,” Bankman-Fried said. “That is not where a lot of other blockchains have been focusing, including ethereum.”

Baby, You’re a Rich Man

With so many investors and developers backing the project, the future looks bright for the upstart. However, investors should take the mindset of an early-stage investor when looking to allocate capital to new projects like Solana. Everything in the crypto world is still very much an experiment — for now…

With a Little Help from My Friends

Sometimes, it’s important to remember where we were to see how far we’ve come. Crypto as an asset class has evolved drastically since 2019 when Q9 Capital was founded, and if you grinded through and didn’t jump ship, you found something that intellectually stimulated you and perhaps still does to this day. Maybe it was DeFi, NFTs, or Web3. Perhaps it’s something new entirely. That’s worth being thankful for as are the loved ones who’ve supported us along the way.

Happy Thanksgiving to all our friends out there across the globe! (…and here are 10 crypto arguments to help you bluff your way through the holidays)

I Read the News Today, Oh Boy

• El Salvador plans ‘Bitcoin city’ powered by volcano
• Jerome Powell secures second term as inflation persists
• Grayscale says Metaverse is a trillion-dollar market opportunity
• Square releases whitepaper for decentralized Bitcoin exchange
• Citi looking to fill 100 new digital asset related roles
• Gemini raises $400M at $7.1B valuation in round led by Morgan Creek
• ConsenSys closes $200M raise at $3.2B valuation from HSBC, others
• Edward Snowden reveals 2013 NSA leak was facilitated using Bitcoin
• Shiba Inu and Dogecoin: The most searched cryptocurrencies on Google USA during November
• Adidas Originals announces partnership with Coinbase
• “NFT” is the Word of the Year

Across the Universe

Yesterday (Legacy Markets)

Oil futures slipped -1.1% while the SPX was unchanged (0.1%)% week on week. 10 year US treasury yields were unchanged at +1bps and the US Dollar index rose +1.4%. The Gold & Silver index dropped -5%

Please Please Me (Crypto Markets)

• BTC/USD rose +3.5% while ETH/USD rallied 13%. The total market cap of the crypto universe continues to stay north of the 2.5tln mark while Bitcoin’s dominance dropped below 42%
• BCH/USD climbed 11.3% from last week levels; BAT/USD jumped +44.7%
• Annualised volatility continued to drift lower for BTC, slipping to 53%, while it continued to rise for ETH to 69%

A Day in the Life (Our Flows)

• Strongly bid client pad with a pickup in volumes (14x buyers vs sellers) during the last week
• Buyers in BTC and ETH on strong volumes
• SOL saw buying interest on modest volumes

Q9 Capital: www.q9capital.com