We've witnessed some intense falls from grace in 2022- Kanye West, Kyrie Irving, Mark Zuckerberg, Alex Mashinsky, Do Kwon, every long crypto investor, and Sam Bankman-Fried are some of the top people that come to mind. However, in terms of once-promising crypto projects, I'd argue that Solana has fallen the furthest. A year ago, Solana seemed unstoppable. Today, it's hard to determine where the bottom will come.

In this piece, I'd like to examine whether Solana is investable in its current state and why I don't think it deserves a place in the top 20 cryptos by market capitalization.

I will confess that I panic-sold a small bag of SOL at around $14 and hold more Solana NFTs than I'm comfortable with now. I also got my ass handed to me for an investment in FCNs on Cega I made a couple of months ago.

So clearly, I'm biased and licking my wounds. But, as much as I want to believe in Solana's long-term value and prospects, I think it has become damaged merchandise. So allow me to share three reasons Solana is dangerous in the short term and why I won't buy more unless the price drops another 50–75%.

What is so great about Solana?

Before dissecting why Solana is a poisoned project, I want to share what makes it such a great project. First, its quick ascendence in the most recent bull run isn't reliant on hype or speculation.

Solana is extremely fast and cheap to use. A Solana transaction is a fraction of a penny when a transaction on Ethereum costs significantly more. Other competing Layer 1s like BSC, Fantom, Polygon, and Avalanche also sport higher gas fees than Solana. And a Solana transaction is faster than these competitors.

Because of its low transaction costs and high speeds, Solana serves as an excellent chain for NFTs and gaming projects. In addition, Solana's premier NFT marketplace, Magiceden.io, has sported over 134 million transactions, an incredible accomplishment.

Further, Solana has 88 DeFi protocols. This is impressive as they couldn't fork projects directly from Ethereum projects. Moreover, some of the most robust and hyped games, such as StepN, MonkeyBall, Illuvium, and Aurory, are on Solana.

Lastly, Solana has one of the best hot wallets, Phantom. The Phantom wallet is easy to use, has a robust mobile app, and is exceptionally intuitive. I'd describe Phantom wallet as an Apple-like product, whereas Metamask is a PC product.

Solana is a refreshing experience after dealing with the clunkiness, slowness, and expense involved with Ethereum and other EVM-compatible chains.

Why has Solana fallen so far, so fast?

Solana has been primarily financially backed by Sam Bankman-Fried (SBF) and Alameda Research. Dumping vast sums of money into an ecosystem as Alameda did will help a crypto ecosystem proliferate and attract skilled developers.

It's no secret that FTX and Alameda Research held significant value in Solana's native token, SOL. Additionally, both entities also contained a large amount of Solana-based DeFi project tokens. With the speedy collapse of SBF's vast empire, the painful drop in Solana's price has caused an adverse chain reaction throughout the ecosystem.

Many investors and traders are taking the same route I did and selling now while the fire is still burning. Fears of staked token unlock, potential dumps and liquidations, and the recent memory of the Luna debacle drive significant volatility in Solana's price.

Since the FTX fiasco, the value of Solana had dropped to under $15 when it was trading in a $30-$40 range for nearly six months prior.

Solana is ranked #15 on CoinGecko. Here's why I see this ranking dropping further.

After taking such a shellacking, many investors may think the worst is over for Solana. However, I would argue the pain for Solana is probably just beginning. The three main reasons I see additional near-term pain for Solana are its tarnished image, massive devaluation, and loss of funding.

Birds of a feather flock together.

The crypto community is pretty pissed at Sam Bankman-Fried. Whether you had money or crypto in FTX, FTX.us, BlockFi, or any other FTX-affiliated exchange/lender or had funds in the crypto market, this cataclysmic fraud is a blow to the entire space. $200 billion in market value evaporated in a week.

Solana has been synonymous with SBF. Of course, the chain already had some black marks with multiple outages, but why would you want to speculate in a wasteland associated with this character?

Meanwhile, you have other chains like Polygon making positive announcements consecutively. Or, you can invest in BSC, backed by (currently) the most legitimate centralized exchange. Finally, Ethereum Layer 2 solutions like Arbitrum and Optimism are growing massively.

Massive Devaluation

Investors who thought they owned a wrapped version of Bitcoin and Ethereum on Solana are learning that their wrapped tokens are wrapped pieces of garbage, trading for a fraction of their supposed peg value. This is because FTX was backing the Sollet-wrapped versions of these coins.

I have some USDC that I may get off Cega (not sure if it will ever be released). However, I am unclear whether the USDC will retain its peg if/when I can pull it off the platform.

Solana-based DeFi tokens' markdowns have been equally harsh as the SOL token. For example, look at the amount of value locked in Solana DeFi in the past week.

It gets even worse if you look at the valuation of the entire DeFi ecosystem on Solana.

Once sporting nearly $10 billion in total value locked, Solana DeFi currently has a total of $327 million. This ranks lower than chains like Mixin and DeFi Chain. Additionally, Solana has less TVL than Fantom and is valued ten times higher than Fantom.

Perhaps the most painful devaluation is in NFTs. Since Solana NFTs get priced in SOL, their values are cratering. For example, a 5 SOL NFT was valued at around $150USD one week ago, and today a 5 SOL NFT is worth less than $75USD. Why would anyone want to buy NFTs on an unstable chain when you can buy them on Polygon, Ethereum, or other more stable chains?

Loss of Funding

Some projects on Solana held their treasuries in FTX. Those treasuries are now gone. They got rugged, just like us retail traders who had funds on the platforms. Loss of treasuries results in less money to improve and build projects.

What if you are looking for funding for an existing or new project? Now that Alameda Research is gone, where do you try to raise funds? I can't see VCs looking to jump into Solana-based projects for the reasons I am outlining here.

Why I may be wrong

I've gotten a lot of things wrong in crypto. I'm not trying to say that Solana is a doomed project that will go the way of EOS or other forgotten crypto projects.

But, when measuring the risks of holding SOL compared to the possible gains, I can think of at least 20 other cryptos where I would instead park my funds.

That said, some other entities could fill the SBF/Alameda void. For example, Solana has a lot of users and a lot of wallets. Many of these users have probably interacted with Ethereum and EVM-compatible chains, so they likely understand the speed and ease of using Solana.

We haven't heard of any projects abandoning Solana, so that is a good sign. And, while Solana's price has cascaded, it has found a bit of stability in the $13/$14 range.

Solana could be an excellent bounce-back candidate if the crypto market sees a short-term recovery.

Key Takeaways

I may be throwing the baby out with the bathwater on this one. But if the crypto market continues its bearish tendencies, I have a hard time believing Solana won't see additional drawdowns.

The narrative behind Solana is so awful right now, and investors who haven't been entirely rekt are nursing their wounds. Solana doesn't deserve a place in the top 20 and needs to find some wins before I can look in its direction again. I may be in the minority, and I'm okay if I'm wrong. Many other cryptos will also go up in a world where Solana goes up.

What do you think? Am I overreacting because I lost money? Is Solana undervalued for its technology? Am I missing something obvious? Do you believe Solana will climb back to its $100+ billion valuation? Let me and other readers know your opinion in the responses.

This article isn't financial advice, and I am not a financial advisor. It is strictly my opinion. I am someone who wants to maintain and grow my wealth so that I can provide a good livelihood for my family and myself. So do your research before making any investments.