As a seasoned analyst with over two decades of experience navigating the tumultuous seas of financial markets, I have seen my fair share of market corrections and recoveries. The recent decline in Solana’s native token SOL (SOL) is reminiscent of the ebb and flow that characterizes this dynamic industry.
On the days between December 25 and 26, Solana’s native token, SOL (SOL), struggled to maintain prices above $200 after several price rejections. This downward trend mirrored the broader cryptocurrency market, which experienced a 3.5% dip over a two-day period ending December 27. Interestingly, while the overall crypto market saw this decline, SOL performed worse with a 5.1% correction. This underperformance has sparked worries among traders about potential additional price decreases.
A significant worry arose from the decrease in on-chain network volumes for Solana, which fell by approximately 30% within a span of seven days.
Although Solana ranked second with weekly volumes of $20.9 billion, it was the poorest performer among the top 10 blockchains. In contrast, Ethereum’s on-chain transactions dropped by 15%, while Sui saw an 8% decrease. Furthermore, Ethereum’s ecosystem strengthened its position when considering layer-2 solutions like Arbitrum, Optimism, Base, and Polygon.
According to DefiLlama’s tracking, the weekly usage volumes of DApps on Solana have shown a downward trend. Notable declines were seen in Orca and Phoenix, which experienced a 39% drop in activity over a week, while Raydium saw a 30% decrease. More worryingly, memecoins on Solana, which have been attractive to new users, have shown poor performance over the past 30 days. Despite this, the overall activity on the blockchain, including token launches, staking, and trading, continues to drive demand for SOL.
Over a 30-day span ending on December 27th, meme coins such as Popcat plummeted by 42%, Dogwifhat (WIF) dipped by 40%, and BONK saw a drop of 25%. However, during the same period, the overall cryptocurrency market capitalization stayed stable.
To clarify, it’s important to note that the issues weren’t limited to Solana-based meme tokens, but Raydium’s recent surge was significantly linked to the hype surrounding pump.fun meme coins. These difficulties emphasize the need for continuous on-chain activity to keep demand for SOL strong.
The total value locked (TVL) on the Solana blockchain network, representing total deposits, hit a two-year peak of 44 million SOL. This significant rise, amounting to a 16% increase monthly, is attributed mainly to platforms including Binance Staked SOL, Jupiter, Drift, and Orca, as suggested by DefiLlama’s data. However, it’s worth noting that some platforms like Jito, Sanctum, and MarginFi experienced a drop in deposits over the same period.
SOL futures signals resilience despite price decline
To determine if experienced traders are becoming pessimistic about SOL, the derivatives market provides valuable clues. For instance, in a neutral market, monthly futures contracts usually trade with a 5% to 10% annualized surplus, which is a payment to sellers for extended settlement periods.
Although it’s slightly lower than the 20% advantage seen on December 18th, the current 10% advantage is teetering at the boundary between neutral and optimistic feelings about SOL. Given that the price of SOL dropped by 16% during this timeframe, the derivatives market has demonstrated a strong resistance to downward pressure.
It’s crucial to evaluate the feelings of retail traders by examining Solana (SOL) perpetual futures. On these platforms, risk is controlled using funding rates, which increase when buyers need more margin and decrease when sellers are in control.
Over the past month, the SOL funding rate has remained below 0.015%—equivalent to an annualized 1.2%—indicating a neutral market. However, on Dec. 27, the rate turned negative, signaling reduced demand from leveraged longs (buyers). This shift is concerning, given that SOL has declined 30% since its all-time high of $264.50 on Nov. 20.
A significant decrease in Solana’s on-chain activity and less enthusiasm for memecoins hint at a somewhat bearish perspective for SOL’s immediate price trends. However, despite this, data from derivatives indicates that large investors (whales) and market makers are still hopeful, which implies a minimal risk of the price falling below $180.
This piece is meant primarily for informational purposes and doesn’t constitute nor should it be interpreted as legal or financial guidance. The perspectives, ideas, and opinions shared within this article belong solely to the author, and may not align with those held by CryptoMoon.
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2024-12-28 00:17