The cryptocurrency market suffered from immense losses in the past week. The bankruptcy of FTX sent crashing waves across all cryptocurrencies with no exceptions. Now that we’re in the middle of the crash, some cryptos are looking risky to own. This is especially true for Solana, which had a close relationship with FTX and Alameda. Will Solana crash because of FTX? What’s the relationship between Solana and FTX?
What is Solana (SOL)?
Solana is a decentralized blockchain founded in 2017 and run by the Solana Foundation. Compared with competing smart contract blockchains like Ethereum, Polkadot, and EOS, it can execute more transactions. To address scalability difficulties, Solana utilizes the POH or Proof of History consensus technique in place of layer 2s or side chains. As a result, transactions happen more often and may be processed up to 710,000 times per second. All nodes have their own internal clocks under the POH consensus paradigm. Once they are coordinated, the block is validated more quickly.
If we look at its infrastructure, Solana looks like a promising blockchain and competes with other smart-contract ecosystems. However, the recent FTX scandal might take Solana down.
What is FTX and Alameda Research?
FTX was the third-biggest crypto exchange, offering its depositors crypto trading services with high leverage. However, due to mismanagement and bad cashflows, the company filed for bankruptcy. Sam Bankman-Fried (SBF) established the quantitative trading company Alameda in 2017. The organization, which was run by CEO Caroline Ellison and was notorious for its aggressive trading tactics, provided cryptocurrency trading in all markets.
After a spike in client withdrawals earlier this week due to multiple scandals, FTX made the bankruptcy announcement. The highest-profile collapse in the history of cryptocurrency occurred after a rescue agreement with a rival exchange, Binance, fell through.
What’s the relationship between FTX and Solana?
Perhaps the most severely affected cryptocurrency throughout this week’s FTX crash has been Solana. While it’s simple to claim that SOL was just caught in the crossfire, the truth is that the network itself was already facing serious problems. TVL metrics and NFT purchasers have plunged to new lows. While the average drop in prices was around 20% in the crypto market, SOL prices lost more than 60% in the past 10 days alone.
According to a leaked copy of Alameda Research’s financial sheet, Sam Bankman-Fried, the creator of FTX, had a SOL holding of more than $1.1 billion.
After Binance founder Changpeng Zhao (CZ) learned that Alameda Research held a sizable holding in FTX Token, there was sell pressure on FTT, and Alameda was obliged to defend its FTT position by liquidating other assets, including Solana. Since FTX is based on Solana’s blockchain and Bankman-Fried was an investor and quite optimistic on the token in August, Solana and FTX do have a history.
Solana Prediction: Will Solana Crash further?
Looking at the technical chart of Solana, we can see some room for a further price decrease. This should lead Solana price to reach the strong support of $10. From there, the crypto market needs to confirm a reversal for the short-term or even a consolidation.
However, a reversal is less likely to happen, especially before 2023. Most analysts predict that it’ll take the crypto market months and even a few years to recover. The FTX crash was a harsh one for most cryptos, and especially for SOL which crashed by more than 60%. If the $10 price is breached lower, we can easily see the $8 and $5 on the horizon as well.
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