The price of ether jumped on Friday as investors gambled on crypto’s newest memecoins.
Ether closed higher by 5.61% at about $1,990, according to Coin Metrics. It’s still below the key $2,000 level it briefly broke through in April following the Shapella upgrade. Earlier in the day it rose more than 6% to hit a high of $1,999.59.
Bitcoin ended the day higher by at $29,501.16. It’s inching back towards the $30,000 level it’s struggled to recover since mid-April.
Market participants put the move on attempts to bring meme mania back to crypto. Cryptocurrencies rallied to start the year but has largely seen low volatility. Many investors have kept on the sidelines following the collapse of FTX, waiting for the market to wash out bad actors and irresponsible or otherwise unserious ventures that contributed to some of the catastrophic events of 2022.
Memecoins like PEPE and SPONGE as well as dogecoin or shiba inu are driven by hype and social media and many investors have suffered significant losses from investing in them.
“There’s a ton of memecoin activity on chain right now that’s generating a lot of gas fees,” or transaction fees on the Ethereum network, and “pushing ETH further deflationary,” meaning its supply is decreasing rather than increasing, said Michael Rinko, a research analyst at Delphi Digital.
The newly created SpongeBob token (SPONGE), which is based on Spongebob Squarepants and launched Thursday, has surged almost 600% since and is trading at less than 1 cent per coin, according to CoinMarketCap.
Pepecoin (PEPE), based on the Pepe the Frog internet meme, is up more than 120% over the past 24 hours, CoinMarketCap said. Pepe the Frog was created by cartoonist Matt Furie in the early 2000s. In 2016 it was appropriated by the alt-right to the point that the U.S.-based Anti-Defamation League put on a list of hate symbols.
“One of the main reasons ETH is up … is down to a resurgence of memecoins,” said Conor Ryder, research analyst at crypto data provider Kaiko. “Whatever your thoughts on memecoins, the facts are they drive users to transact on Ethereum, which helps the network earn more fees. Ethereum gas fees have been revived by the return of memecoins, just today hitting 1-year highs.”
“As gas fees increase, more ETH is burned, and at current activity levels ETH is a deflationary asset, which should help boost ETH’s price,” Ryder added. “In the last 24 hours, trading volumes for PEPE on Uniswap have surpassed the volumes of Tether and Wrapped Bitcoin, some of the highest volume tokens on the exchange.”
Ether ended the week higher by 4.53%, marking its second straight positive week and the seventh in the last eight. Coin Metrics measures a week in crypto, which trades 24 hours a day, from the 4:00 p.m. ET stock market close one Friday to the next.
Bitcoin closed the week up just 0.35%. It’s the second straight positive week for bitcoin and its third positive week in four.
Solana logo displayed on a phone screen and representation of cryptocurrencies are seen in this illustration photo taken in Krakow, Poland on August 21, 2021.
Jakub Porzycki | NurPhoto | Getty Images
Solana was touted as the cryptocurrency that would challenge ether with an eco-friendlier approach, faster transaction speeds and more consistent costs.
Investors who made that bet had a miserable year. The token’s market cap collapsed from over $55 billion in January to barely above $3 billion at year-end.
Among Solana’s biggest problems in late 2022 was its close relationship to FTX founder Sam Bankman-Fried, who faces eight criminal fraud charges after his crypto exchange went bankrupt last month. The disgraced former crypto billionaire was one of Solana’s most public boosters, touting the advantages of the blockchain technology and investing over a half-billion dollars in Solana tokens.
Bankman-Fried’s companies held nearly $1.2 billion worth of the token and associated assets in June, according to documents reviewed by CoinDesk.
When FTX fell apart, investors bailed on Solana to the tune of about $8 billion. But in recent days, as the rest of the crypto world has been relatively quiet and prices stable, Solana has plummeted further.
Two of the biggest non-fungible token (NFT) projects built on Solana announced their migration off of Solana’s platform on Christmas Day. But the recent slides came after that news had already broken, making Solana’s recent slide something of a mystery.
In the last week, Solana has declined over 30%. Ether has held steady, shedding 1.7% in the same time period, while bitcoin has only dropped 1.2%. Among the 20 most-valuable cryptocurrencies tracked by CoinMarketCap, the next biggest loser over that stretch is Dogecoin, which has fallen 9%.
In just one hour of trading on Thursday, Solana slid 5.8%, bringing it to the lowest since early 2021, around the time that Bankman-Fried began to vocally offer his support for the project.
Solana has since come off the lows, with a market cap now crossing $3.5 billion. Its 24-hour trading volume is up over 200% on a relative basis.
During the crypto market’s heyday in 2021, Bankman-Fried was hardly alone in his bullishness.
Developers raved about Solana’s support for smart contracts, pieces of code that execute pre-programmed directives, as well as an innovative proof-of-history consensus mechanism.
Consensus mechanisms are how blockchain platforms assess the validity of an executed transaction, tracking who owns what and how well the system is working based on a consensus between multiple record-keeping computers called nodes.
Bitcoin uses a proof-of-work mechanism. Ethereum and rival Solana use proof-of-stake. Rather than relying on energy-intensive mining, proof-of-stake systems ask big users to offer up collateral, or stake, to become “validators.” Instead of solving for a cryptographic hash, as with bitcoin, proof-of-work validators verify transaction activity and maintain the blockchain’s “books,” in exchange for a proportional cut of transaction fees.
Solana’s supposed differentiating factor was augmenting proof-of-stake with proof-of-history — the ability to prove that a transaction happened at a particular moment.
Solana soared over the course of 2021, with a single token gaining 12,000% for the year and reaching $250 by November. Yet even before the collapse of FTX, Solana faced a series of public struggles, which challenged the protocol’s claim that it was a superior technology.
Much of Solana’s popularity was built around growing interest in NFTs. Serum, another exchange backed by Bankman-Fried, was built on Solana. When the calendar turned to 2022, Solana’s limitations started to become apparent.
Barely a month into the year, a network outage took Solana down for over 24 hours. Solana’s token fell from $141 to a low of a little over $94. In May, Solana experienced a seven-hour-long outage after NFT minting flooded validators and crashed the network.
A “record-breaking four million transactions [per second]” took out Solana and caused the price of its token to drop 7%, CoinTelegraph reported at the time, pushing it further into the red during the bruising onset of crypto winter.
In June, another outage prompted a 12% drop. The hours of downtime came after validators stopped processing blocks, immobilizing Solana’s touted consensus mechanism and forcing a restart of the network.
The outages were concerning enough for a protocol that sought to upend ether’s dominance and assert itself as a stable, rapid platform. Solana was experiencing growing pains in public. The project was first built in 2020 and is a younger protocol than ether, which went live in 2015.
Technology challenges are to be expected. Unfortunately for Solana, something else was brewing in the Bahamas.
The SEC called it “brazen” fraud. Bankman-Fried’s use of customer money at FTX to fund everything from trading and lending at his hedge fund, Alameda Research, to his lavish lifestyle in the Caribbean roiled the crypto markets. Bankman-Fried was released on a $250 millionbond last week while he awaits trial for fraud and other criminal chargesin the Southern District of New York.
Solana since November 2022, the month that FTX failed and filed for bankruptcy protection.
Solana lost more than 70% in total value in the weeks following FTX’s November bankruptcy filing. Investors fled from anything associated with Bankman-Fried, with prices for FTT (FTX’s native token), Solana, and Serum plunging dramatically.
Solana founder Anatoly Yakovenko told Bloomberg that rather than focusing on price action, the public should remain focused on “having people build something awesome that’s decentralized.”
Yakovenko did not immediately respond to CNBC’s request for comment.
FTT has fared the worst, losing practically all its value. But Solana has seen a continued flight in recent days, reflecting ongoing concerns about FTX contagion and skepticism about the long-term viability of its own protocol.
Developer flight is the most pressing concern. Solana’s raison d’etre was to solve bitcoin and ether’s struggle “to scale beyond 15 transactions per second worldwide,” according to developer documentation. But active developers on the platform have dropped to 67 from an October 2021 high of 159, according to Token Terminal.
Multicoin Capital, a cryptocurrency investment firm, has maintained a bullish stance on Solana. Even after the implosion of FTX, Multicoin continued to strike an optimistic tone about the suddenly beleaguered blockchain.
“We recognized that SOL was likely to underperform in the near term given the affiliation with SBF and FTX; however, since the crisis began we’ve decided to hold the position based on a variety of factors,” Multicoin wrote in a message to partners obtained by CNBC.
Multicoin, and other prominent crypto voices, maintain that the fallout from FTX underscores the need for a return to basics for the crypto industry: A transition away from juggernaut centralized exchanges in favor of decentralized finance (DeFi) and self-custody.
An uptick in daily activity at now peerless Binance might suggest that many crypto enthusiasts have yet to take that missive to heart.
It’s unsurprising that Yakovenko continues to believe in Solana. Yet even Vitalik Buterin, the man behind ethereum, voiced his support for Solana on Thursday. “Hard for me to tell from outside, but I hope the community gets its fair chance to thrive,” Buterin wrote on Twitter.
2023 may prove a seminal year for defi, as crypto-curious investors look for safer ways to garner returns and custody their assets. Bitcoin was born out of the 2008 financial crisis. Now the cryptocurrency industry faces a test of its own.
“Lehman was not the end of the banking industry. Enron was not the end of the energy industry. And FTX won’t be the end of the crypto industry,” Multicoin told investors.
– CNBC’s Ari Levy and MacKenzie Sigalos contributed to this report.
