The Solana (SOL) price was approximately £24.3 in October 2023, down 84.6% from the November 2021 high of £158 but 148% above the £9.8 low at the close of 2022. From a technical perspective, the 30-day volatility of SOL is approximately 62%, which is higher than Bitcoin’s 35%, indicating a relatively high short-term risk. On-chain data shows that SOL active addresses have fallen by 12% over the past week, and the average daily trading volume has gone down from 40 million pounds to 32 million pounds. The liquidity squeeze may further boost price volatility. If converted using the current exchange rate of 1 pound for 1.15 euros, in the conversion from 10 SOL to 243 pounds, there is an exchange cost of approximately 1.5% (approximately 3.6 pounds), and the actual amount receivable is 239.4 pounds, which is lower than the exchange cost of the direct fiat channel (typically 0.5%-1%).
From a macroeconomic perspective, the UK inflation rate of 6.7% (data up to August 2023) remains high. The Bank of England’s benchmark interest rate of 5.25% has reached a 15-year high. The annualized return on holding pound cash (e.g., savings accounts) can be 4% to 5%, while the annualized volatility of the cryptocurrency market exceeds 100%, and the risk-return ratio needs to be cautiously weighed. Historical data shows that in September 2022, the price of SOL dropped by 14.2% within 24 hours due to a network downtime incident. These black swan incidents have the potential to cause an immediate impact on the sol to pounds function. According to CoinGecko data, SOL’s buy and sell order book depth on CEX (centralized exchange) is only within the ±2% range of the prevailing price with just £12 million liquidity. A large sell can lead to a slippage loss of more than 2.3%.
In terms of regulatory policy, the FCA (Financial Conduct Authority) of the United Kingdom requires the registration and filing of cryptocurrency exchanges from 2024. Exchanges that do not comply (accounting for 35% of the existing ones) can restrict the pound’s deposit and withdrawal function and increase sol’s compliance cost to pounds. For instance, in June 2023, Binance UK temporarily suspended the withdrawal of pounds, meaning that users were forced to pay an additional conversion fee of 1.8% to 3% through a third-party payment provider. In addition, the UK’s cryptocurrency tax policy only permits an individual’s yearly tax-free transaction limit to be £12,300. Any amount over that is subject to taxation with a 20% to 45% capital gains tax. If the holding cost of SOL is lower than the current price, a tax budget must be allocated.
On the market cycle basis, the MVRV (market capitalization/realized market capitalization) ratio of SOL is 0.89. The ratio being less than 1 implies that holders are largely in a loss position, and that will dampen the selling pressure. However, the whale address on the chain (holding over 1 million SOL) has reduced its holdings by 4.2% in the past 30 days, approximately 230 million pounds, indicating that some large investors have chosen to cash out. Referring to the DeFi summer market in 2020, SOL had grown by 680% within three months. If it’s currently at the bottom of a similar cycle, selling too early may cause you to miss out on returns. Technical analysis shows that the SOL/BTC pair has broken the key support level of 0.0012 (the January 2023 low). If it fails to reclaim, it may lose another 15% to 20% relatively.
On the events side, in September 2023, Visa announced it was piloting US dollar stablecoin settlement on Solana, pushing SOL 8.7% higher in a day. This collaboration has yet to explicitly involve the pound ecosystem, however. In comparison, Ripple and British financial institutions’ pound stablecoin projects (expected to launch in 2024) may capture market attention. According to CoinMarketCap data, its pound trading volume accounted for 7.3% of its total trading volume, much lower than 68% of the US dollar pair. This kind of liquidity concentration in the US dollar market can widen the sol to pounds spread by 0.3%-0.8%. Overall, one must take into account the cost of holding, tax planning and short-term capital requirements. If the holding cost is below £20 and pounds need to be used to cover living costs (e.g., repayment of a mortgage that carries a 7% per annum interest rate), the partial selling now is appropriate. If it is a long-term investment, one can wait for the market rebound signals after the start of the Federal Reserve’s interest rate cutting cycle in Q1 2024.