Milk Road Sneak Peek: Market Musings ⏮️

The Milk Man usually doesn’t deliver on Sundays. But today, we’re serving up a surprise for you.

We wanted all of our loyal Roaders to be able to read a piece sent out in the first week of Milk Road Pro. Market Musings is a weekly write up consisting of market commentary and insights into a top story or token. Some data may have changed as this week’s Market Musings was sent to our Pro members on Friday, July 14.

This week we touched on the price action following the XRP news and dove into the recent resurgence of Solana. If you like what you see, you can sign up for Pro below.

And Roaders, let’s keep it real. We know we’ve been talking about Pro a lot but it’s been an exciting week over here. We’re gonna tone down the shilling now that launch week is over.

Enjoy your Sunday!

- The Milk Man

There’s only a few days left to lock in $10/month for your first three months. That’s 50% off the regular price.

Key Points

“A rising BTC Ripple tide lifts all boats”.

Well, that was oddly the case this week.

Following the mixed judgment surrounding Ripple Labs’ case against the SEC, XRP rallied as much as ~65% yesterday. Congrats, XRP army.

But the rally was not just confined to XRP. There were a lot of “winners” crowned this week.

And one category stood out from the rest: alternative Layer-1s.

In that category, one coin stood out most: SOL. More on that below 👇

But first, let’s talk about “the majors”.

Bitcoin (BTC) was flat to down most of the week, but finished the 7D period >$31K and up ~3% after the Ripple news.

“Wen BTC ETF?” remains the next major question on the regulatory front.

The SEC still has until mid August to approve/deny/extend the recent wave of TradFi BTC ETF applications. The filing from Ark Invest/21Shares is first in line, and approaching quickly. 🍿 

Ether (ETH) was flat to start the week, but finished up ~7% the past 7D on the Ripple news.

Aside from price, there were also some notable developments in ETH land.

On Monday a new milestone was reached: ~20% of all ETH are now staked.

That equates to ~24M ETH worth ~$45B. Oh how far the ETH staking ecosystem has come in the past ~2.5 years. Shoutout to the ETH devs 🙏 

On the L2 front, Consensys (Ethereum development studio), launched the alpha mainnet of its new zkEVM L2 network this week, Linea. The project’s testnet phase saw an estimated ~5.2M unique wallets test out the network over 3 months. Good on ya, airdrop farmers 🫡

It joins about a dozen other zkEVMs that were recently launched. But Linea’s worth watching.

Here’s why:

1/ Consensys’s crypto wallet, MetaMask, has ~30M active users. Even if Consensys manages to get a tiny fraction of them to try out Linea, that could be a whole lotta new users for L2s.

2/ Linea could give an early look at what to expect for Coinbase’s much anticipated Base L2 network.

Coinbase is in the beginning stages of a “legal battle royale” with the SEC. But it’s still working to bring Base to mainnet “soon”. Woot woot, Coinbase.

Coinbase has ~9M active users and ~100M registered users. A successful Base launch would introduce even more users to the L2 world.

Alternative Layer-1s: XRP may have stolen the show this week. But alternative layer-1s put on a big sideshow.

Those on the SEC’s “naughty list” of unregistered securities were some of the biggest gainers over the past 7D:

The good news? Some of these coins (e.g., SOL, MATIC) remain at relatively low market caps, especially when compared to BTC and ETH.

Small market caps -> more (potential) upside -> altcoins worth keeping an eye on.

So Wen Alt Season?

With BTC and ETH rallying this year, “Wen altseason” has been the top of mind for investors and degens, alike.

Altcoins come in different shapes and sizes (e.g., layer-1s, DeFi tokens, memecoins, etc.).

But many have been looking for alternative layer-1s, in particular, to show signs of a recovery.

Why alternative layer-1s?

Following BTC’s run up from ~$7K to ~$30K in 2020 they had, let’s just say, “a good 2021”. 

Four standouts of last altseason were Polygon (MATIC), Solana (SOL), Avalanche (AVAX), and Cardano (ADA).

Does another alt L1 season of that magnitude seem likely? Probably not.

But even a “mini alt L1” season could result in some pretty eye popping returns.

Collectively, alternative layer-1’s are ~70% off their April-22 highs. Even if they inch back some of the way towards their prior highs, that would translate to some pretty high returns.

Well, one of them has “inched back” a decent amount this year: Solana. And many are comparing it’s outlook to when ETH sank below $100 in late 2018.

This week alone, SOL was up 31%, bringing its yearly return to 182% so far.

What’s Driving The SOL Rally?

Fundamentals and expectations of future profits. 

More people are (probably) starting to think along these lines:

“Some altcoin projects are going to survive and thrive when “crypto winter” comes to an end. Solana is probably one of them.”

There’s a lot to unpack when it comes to Solana. Here’s what’s top of mind for the Milk Man:

The Good And Bad Of Solana

Let’s start with the bad.

1/ There is still a tail risk that SOL gets delisted from more exchanges. The SEC placed SOL on its “naughty list“ when it alleged SOL was an unregistered security in June.

That caused Robinhood and a few others to delist SOL. But Coinbase has said that “it does not intend” to delist it. And seeing as Coinbase recently stated that it will re-list XRP (which was delisted for ~2.5 years given its “alleged unregistered security status”), it looks like they will do everything they can to not delist it. That helps.

2/ Ownership of SOL is still relatively concentrated. Alameda Research liquidators hold claims to ~13% of all SOL in circulation. They won’t be able to dump SOL en-masse anytime soon thanks to lock ups extending through 2028. But one entity holding upwards of 10% of a decentralized network’s token is not good.

3/ Its ecosystem is still in recovery mode. Total value locked in Solana dApps peaked at ~$10B in November 2021 and currently stands at $300M.

To add to the DeFi pain, NFT trading volumes on Solana are way down. They peaked at ~$200M per week in 2021, but have been stuck in double and single digit millions all year.

And it’s still shaking off the major reputational blow of having crypto’s biggest villain, SBF, be its “poster child”. Yikes.

The good news?

1/ The “days of downtime” for Solana appear to be ending.

Its blockchain has only had 1 instance of downtime this year!

This compares to 14 outages last year… Oof.

Less downtime means less risk associated with transacting on Solana. That’s the first positive.

2/ It’s taking a different approach to blockchain scaling. Ethereum and other layer-1s have embraced the multi-chain and layer-2 scaling approach.

But Solana has remained (primarily) focused on building one high speed chain.

It has worked out pretty well so far. Despite its downtime, Solana has outperformed all major chains on a scalability (i.e. transactions per second) basis. The fee for a user to submit a transaction is a fraction of a penny.

Even if few people are using Solana today, it could (in its current form) support a lot more use cases and users than most other chains out there.

3/ Its culture is centered around trying new things. Last year Solana Labs launched the first Web3 mobile phone. Jump Crypto is working on “leveling up” Solana infrastructure with a new software client, Firedancer.

And they are experimenting with the biggest buzzword of 2023: AI:

Will all of their endeavors be a success? Probably not.

But Solana actually trying new things is confidence inspiring for its long-term survival.

The Big Picture

SOL has already rallied 182% this year. So, the entry point for SOL today (~$28) is worse than it was at the start of the year (~$10).

And the days of $3 SOL don’t seem to be coming back anytime soon. :(

Yes, SBF actually tweeted that. And yes, it’s still up on the bird app.

But in times like these, the Milk Man likes to kick back with a nice cold glass of milk and zoom out.

Even after rallying 182% so far this year, SOL is still ~90% below its all-time-high. Funny how algebra works, innit?

If you’re in the market for an altcoin bet, SOL is worth keeping an eye on, frens.

Lastly, our team is always looking to improve and wants to hear from you on how we can make Pro even better. Please reply to this email with your feedback and suggestions!

Disclaimer

_{This report is for informational purposes only and should not be relied upon as a basis for investment decisions, nor is it offered or intended to be used as legal, tax, investment, financial or other advice. You should conduct your own research and consult independent counsel on the matters discussed within this report. Past performance of any asset is not indicative of future results.}

_{It should also be noted that the writer(s) of this report may hold assets mentioned in the article at the time of writing.}

_{© 2023 MilkRoad.com. All rights reserved.}