Bitcoin and DeFi Coins Rally, Ethereum Alternatives Drop as Solana’s Outage Triggers Sector Rotation

Solana’s and Arbitrum’s outages were bad optics for Ethereum alternatives in general.

Sep 15, 2021 at 9:45 a.m. UTC
Updated Sep 15, 2021 at 3:37 p.m. UTC

The crypto market is witnessing a classic sector rotation in the wake of programmable blockchain Solana’s outage.

For the first time in several weeks, such decentralized finance (DeFi) tokens as AAVE, chainlink a and UNI are leading bitcoin and the broader market higher with double-digit percentage gains on a 24-hour basis. Meanwhile, native tokens of the so-called Ethereum alternatives like Algorand, Avalanche, Cosmos and Solana are nursing 5-7% losses, according to data source Messari.

“After the phenomenal rally of solana and being discovered by many people as a strong contender to long-term rival for Ethereum due to its cheap gas fee and smart contracts protocols, it’s time for a reset and bitcoin has regained focus,” Laurent Ksiss, managing director of exchange-traded products at 21Shares, told CoinDesk in a Telegram chat. “It’s clear that Solana’s technical glitches on Monday caught many by surprise, and, as a result, may have tainted its rally and premise.”

“Solana and Arbitrum’s outage was bad optics for Ethereum alternatives in general,” crypto research firm Jarvis Labs said. “What we are seeing now in the market is the rotation of money between ecosystems.”

On Tuesday, Solana’s high-speed blockchain suffered downtime as “resource exhaustion” on the network brought blockchain validation to an hours-long halt. As such, activity across Solana’s multibillion-dollar DeFi and non-fungible tokens ecosystem came to a grinding halt.

Recently launched Arbitrum, which scales Ethereum by leveraging Optimistic rollups technology to increase transaction speed and lower fees, was also knocked offline. These events drew the ire of the crypto industry bigwigs.

“Events of today in crypto just go to show that genuine decentralization and well-designed security [like Ethereum] make a far more valuable proposition than some big transaction throughput [speed] numbers coming from an exclusive and closed set of servers,” Gavin Wood, computer scientist and founder of Founded Polkadot, Kusama, Ethereum, Parity, Web3 Foundation, tweeted Tuesday.” If you can’t run a full-node yourself, then it’s just another bank.”

Solana’s SOL token chalked up more than a fourfold rally to over $200 in the three weeks to Sept. 9 as the NFT boom and high transaction fees on Ethereum drove investors to relatively cheaper and faster alternatives. Native tokens of Avalanche, Cardano and Cosmos also charted impressive rallies during that time frame, while ether remained flat at about $3,400.

At press time, SOL is trading near $165, while bitcoin and ether are changing hands near $47,000 and $3,400, respectively.

Bitcoin printed a UTC close above the crucial 200-day moving average on Tuesday as the dollar dropped after a softer U.S. core consumer price index for August eased concerns that the Federal Reserve may speed up plans to unwind liquidity-boosting stimulus program.

“Investors are refocusing on the main cryptocurrencies. Support for bitcoin remains strong again and is cyclical, and we may see breakthrough above key levels,” 21Shares’ Ksiss added. “Solana’s performance has been overwhelming last month, and this drawback could see further depreciation as the market resets and focuses on what the consequences are to its glitches.”

DISCLOSURE

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Omkar Godbole is the senior reporter on CoinDesk's Markets team.