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Key Takeaways:

  • The collapse of the FTX crypto exchange has a ripple effect on the entire crypto industry. casualties pile up when a bankruptcy case is filed.
  • Sam Bankman-Fried (SBF) backed the Solana blockchain and used it to build his own decentralized exchange.
  • While Solana was once a threat to Ethereum, the blockchain has seen SOL, its native token, depreciate due to macroeconomic factors and scandals that have rocked the entire crypto ecosystem.

It doesn’t seem like that long ago that we saw Sam Bankman-Fried on the cover of so many magazines promoting his plan to give away most of his fortune. Many people considered SBF to be the ultimate “Crypto Robin Hood”.

SBF was also promoting many other projects in the field of cryptocurrencies. One of those secondary ventures he promoted was the Solana blockchain.

The Solana blockchain is known for offering a platform with fast transaction times and cheap fees. Solana was supposed to be the “Ethereum Killer” but it didn’t happen and never will.

Solana has seen its native token SOL fall by at least 30% at times since the collapse of FTX, as SOL was Alameda’s second-largest holding. We’ll take a look at the outlook for the Solana cryptocurrency in the wake of the FTX bankruptcy.

What happened to FTX?

Before we evaluate Solana, we need to address what happened with FTX. The crypto exchange has been valued at $32 billion in early 2022 with several high-profile celebrity endorsements. Most people in the crypto community thought it was too big to fail.

When the report revealed that FTX did not have adequate funds in reserves, customers rushed to cash out their investments as they were justifiably worried that it would be the next crypto platform to go bankrupt. This in turn led to reduced liquidity.

When it emerged that Binance, a rival crypto exchange, would not buy the exchange in a last-ditch effort to save it, FTX had no choice but to file for bankruptcy protection on November 11th.

Bankman-Fried frequently peppered 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 offloading SOL tokens to boost liquidity.

The collapse of FTX has had a significant impact on the overall cryptocurrency space. Investor confidence is low. Investor concern also grew around projects related to SBF and FTX, given the possible consequences of the bankruptcy process.

What is 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 sign. The story outlined how SBF’s counterintuitive investment strategy would either build him an empire or end in disaster.

The latter happened and SBF is currently behind bars.

SBF has admired 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 Solana on the blockchain. It was known to many in the crypto space that SBF invested heavily in SOL tokens through his companies.

While SOL was Alameda’s second largest investment, the trading firm also actively invested in other blockchain projects. Alameda has invested in Serum (SRM), MAPS (MAPS), and Ogyxen (OXY) on the Solana blockchain.

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How did FTX affect Solana?

After much speculation, Solana’s team published a blog post addressing the financial ties between Solana, FTX and Alameda Research. The Solana Foundation confirmed that as of November 6, they had approximately $1 million in cash or equivalent assets on the FTX platform.

This was the time when FTX had to stop customer withdrawals as it became clear that they did not have the funds. These funds are now stuck in FTX pending the outcome of further events in the bankruptcy proceedings.

The Solana Foundation reported that these funds are equal to less than 1% of funds, so it’s not a dire situation.

Alameda Research’s liquidators now own hundreds of millions of dollars in SOL, according to Solana Compass. Based on the report, Alameda Research previously controlled 48,636,772 SOL tokens, which are now worth about $643,000,000.

However, Solana’s team blog stated that FTX and Alameda bought more than 50.5 million SOL from the fund. They wrote that a significant portion of the SOL will be locked into monthly unlock schedules through 2028.

You are thoroughly confused. It is impossible to predict what will happen to these SOL tokens during the bankruptcy proceedings. In addition, the article published by Solana also emphasizes how the FTX collapse did not affect the security of the blockchain.

What happened to Solana?

Solana, along with other major cryptocurrency tokens, has been hit hard by macroeconomic factors that are negatively impacting the entire space.

Last November, the price of Ether peaked at around $4,900, while Bitcoin reached almost $69,000. Then it became clear that inflation was rising, which meant the Fed would have to raise interest rates to cool the economy.

Rather than a hedge against inflation, cryptocurrency has turned out to be another speculative asset that will fluctuate based on macroeconomic conditions.

SOL is trading around $14.00 as of mid-December, down more than 91% year-to-date and sharply below its all-time high of $259.99.

What’s next for Solana and Krypto?

There are many factors at play here and many crypto enthusiasts are gearing up for their extended crypto winter.

For starters, we need to see how the bankruptcy proceedings are going. Then we’ll have to wait and see how to determine the impact of the Fed raising interest rates as it works to cool inflation.

We can expect two things for Solana and crypto in general.

More price volatility

It’s safe to say that there will be further volatility and price volatility as more news emerges about the fallout from FTX’s bankruptcy. The fallout will send ripples through the crypto space over the next year.

We do not expect crypto prices to stabilize in the near future.

Additional regulations

We cannot ignore the importance of regulations. The White House, the SEC, and even the Fed have emphasized the importance of crypto regulation. Now, many within the industry are also asking for them, which wouldn’t have been the case even six months ago.

Michael Saylor, a Bitcoin advocate, recently spoke on this topic after the FTX crash, stating that “the future of the industry is registered digital assets traded on regulated exchanges where everyone has the investor protection they need.”

We don’t know what these crypto regulations will look like, but we do know that this area is in desperate need of further study.

How should you invest?

Investing in digital assets is risky, even in the best of times. The last year or so has shown us that investing in crypto comes with a lot of uncertainty, which is not for those who are not prepared to handle unprecedented volatility.

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