The Institutional Gateway – Solana Takes Center Stage

The launch of Solana (SOL) futures on the Chicago Mercantile Exchange (CME) on March 17 was a highly anticipated event

The launch of Solana (SOL) futures on the Chicago Mercantile Exchange (CME) on March 17 was a hotly anticipated event, marking a significant step in Solana’s journey towards institutional adoption. However, the initial trading volume of $12.1 million fell short of the expectations set by the day-one launches of Bitcoin (BTC) and Ethereum (ETH) CME futures. This article delves into the nuances of Solana’s CME debut, comparing its performance with its predecessors, analyzing normalized volume metrics, and exploring the potential long-term implications for SOL.

The Initial Numbers: A Comparative Analysis

The raw trading volume of $12.1 million on Solana’s first day of CME futures trading drew attention, especially when comparing it with the much higher volumes observed during the launches of Bitcoin and Ethereum futures. This initial comparison might lead to the conclusion that Solana’s CME launch was disappointing. However, a deeper analysis reveals a more nuanced picture.

Vetle Lunde, Head of Research at K33Research, provided valuable insights into the trading activity. According to Lunde’s calculations, Bitcoin CME futures generated a trading volume of $688 million on their first day of trading in December 2017, while Ethereum CME futures saw a volume of $319 million on February 8, 2021. In contrast, Solana’s CME futures generated a trading volume of $12.1 million on March 17.

Furthermore, comparing the ratios of the first day’s trading volume to the cryptocurrency’s market capitalization at the beginning of the day, we observe that Bitcoin had a ratio of 0.0319%, Ethereum had a ratio of 0.0173%, and Solana had a ratio of 0.0166%.

The Power of Normalized Volume: A Fairer Metric

As Lunde astutely pointed out, comparing raw trading volumes without considering market capitalization can be misleading. To provide a fairer assessment, it’s essential to examine normalized volumes, which adjust trading activity relative to a crypto asset’s market cap.

Normalized volume offers a more transparent evaluation of institutional engagement, as it accounts for the differences in market size between Bitcoin, Ethereum, and Solana. This metric allows us to understand how much interest there is per unit of market capitalization.

Comparative Normalized Volumes: Bitcoin Leads, Solana and Ethereum Align

When normalized volumes are compared, Bitcoin emerges as the leader, with a normalized volume of 0.0319%. This means that for every $1 held by investors at the beginning of the day, $0.0319 was traded on average during the day.

In contrast, Ethereum and Solana had lower normalized volumes, with 0.0173% and 0.0166%, respectively. This suggests that while there was less interest in both assets relative to their market caps, the level of engagement was still significant, especially considering the early stages of institutional adoption.

Interpreting the Normalized Volume Data:

The normalized volume data suggests that Solana’s CME futures launch, while not as explosive as Bitcoin’s, was not a complete failure. The similarity in normalized volumes between Ethereum and Solana indicates that institutional investors are showing a similar level of interest in both assets, relative to their market caps.

This analysis highlights the importance of considering normalized metrics when evaluating the performance of cryptocurrency futures launches. Raw trading volumes can be deceiving, especially when comparing assets with vastly different market capitalizations.

The Historical Precedent: Bitcoin and Ethereum’s CME Launches

To gain a better understanding of the potential implications of Solana’s CME launch, it’s essential to examine the historical precedents set by Bitcoin and Ethereum.

Bitcoin’s CME Launch: A Bear Market Catalyst?

The launch of Bitcoin CME futures on December 18, 2017, coincided with the peak of the 2017 bull market. Following the launch, Bitcoin experienced a significant decline, dropping from $19,000 to $14,000 by the end of the year. This correction continued into 2018, marking the beginning of a prolonged bear market.

While it’s difficult to attribute the bear market solely to the CME futures launch, it’s clear that the event coincided with a significant shift in market sentiment. The optimism and hype surrounding Bitcoin’s all-time high began to fade as the futures launch approached, and the cryptocurrency’s price came under pressure.

The launch itself was met with mixed reactions, with some analysts and traders expressing skepticism about the timing and impact of the futures contract. At the same time, others believed that it would open up new avenues for institutional investment and liquidity.

Ultimately, the bear market of 2018 had several contributing factors, including regulatory scrutiny, exchange hacks, and the unwinding of leveraged positions. Still, the correlation between the CME futures launch and the subsequent price correction is undeniable