Red day for crypto, green day for miners
The crypto markets saw significant downturns amid weakening macro-economic conditions, a hawkish Fed tone, and tightening financial conditions, with Solana and Ethereum ecosystems experiencing notable losses. While market sentiment was further dampened by the Balancer exploit, BTC miners IREN and CIFR rallied due to lucrative AI-related deals with Microsoft and AWS, highlighting their strategic pivot to high-performance computing (HPC). Solana faced challenges with declining Real Economic Value (REV) and value capture, while institutional ETF flows provided some optimism. Despite decreased revenue, Solana demonstrated improved network performance during stress tests, outperforming other blockchains in transaction fees and transactions per second (TPS). The broader crypto landscape remains under pressure, with upcoming macroeconomic events likely to shape future market direction.
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Market Overview and Crypto Pullback
This week, the crypto market saw a sea of red as macroeconomic conditions weakened, leading to a risk-off sentiment. Major tokens, including Ethereum and Solana, faced steep declines amidst tightening financial conditions. The Balancer exploit exacerbated the downturn, further undermining sentiment in the market. Key metrics show gold (+0.5%) as the day’s only gainer, while BTC slid by -0.9%, underperforming traditional benchmarks like the S&P 500 (-0.3%) and Nasdaq 100 (-0.1%).
Interest Rate Dynamics and Financial Conditions
The weakness in crypto markets can be attributed to tighter financial conditions driven by rising rates. The 10-year US Treasury yield neared 4.1%, and the dollar index (DXY) strengthened, reflecting the Federal Reserve's hawkish tone. October’s ISM Manufacturing data further reinforced this trend, with a contractionary print of 48.7, signaling weak economic activity. Losses in crypto were most pronounced in high-beta sectors, with Layer 2s falling 14.0%, Ethereum -13.6%, and Solana ecosystems -13.2%.
AI Partnerships Propel BTC Miners' Stocks
On a brighter note, BTC miners like IREN and Cipher Mining (CIFR) saw significant stock gains after unveiling major HPC (High Performance Computing) deals. IREN shares jumped 11.5% following a lucrative five-year partnership with Microsoft, worth $9.7 billion. This deal highlights how BTC miners are becoming pivotal in AI infrastructure, leveraging their power-dense facilities. Similarly, Cipher Mining announced a 22% stock jump, supported by new agreements with AWS and plans for a major campus in Texas, underscoring their strategic pivot to AI hosting.
Solana’s Struggles: Network Performance and Value Capture
Among major crypto assets, SOL is trading below its Oct. 10 liquidation wick low, with various tokens in the ecosystem hitting all-time lows. Institutional flows into Solana have slowed, with 1.92 million SOL purchased in October, compared to 9.84 million in September. Despite challenging conditions, ETF flows remain strong, as the Bitwise SOL Staking ETF (BSOL) and Grayscale Solana Trust (GSOL) gained momentum shortly after their respective launches, achieving $420 million and $88 million AUM by early November.
Solana’s Mixed Fundamentals
Solana’s fundamentals present a mixed picture. Its Real Economic Value (REV) dropped to $41 million in October — the lowest since February 2024 — and Solana’s streak as the top revenue-generating chain ended. However, application revenue on the chain remained more resilient, reaching $92 million, with Pump accounting for 50% of this revenue despite a much smaller market cap relative to Solana. This raises questions about Solana’s ability to capture value, even as improved network performance benefits users.
Improved Performance During Stress Tests
Amidst the Oct. 10 liquidation cascade, Solana’s network showed significant resilience compared to Ethereum, Arbitrum, and Base. Solana’s median fees, for example, spiked only modestly from $0.0012 to $0.0056, normalizing quickly, while Ethereum’s fees surged from $0.34 to $220, a 650x increase. Solana’s transactions per second (TPS) also surged to 3,400, outperforming its competitors during the event. The improvements in network infrastructure by teams like Anza, Firedancer, and Helius have made Solana a leading decentralized network in terms of reliability under stress.