Solana Down Following Price Rally
05 Jan, 2024 ● أخبار العملات
Solana's native token SOL has undergone a rapid decline of 22% within just eleven days after reaching $126.30 on December 25, 2023.
While some analysts argue that there may still be bullish momentum, given its current price of $98.40, which represents a 61% gain from the previous month, crypto traders tend to reallocate their investments quickly when better opportunities arise.
Now, investors are questioning whether the activity on Solana's network reflects a negative sentiment towards SOL's token price.
Some analysts attribute SOL's rally to the excitement around airdrops that occurred on the network, particularly after the launch of the JITO token on December 7, 2023, which quickly gained a market capitalization of over $300 million on major centralized exchanges.
This success was followed by the introduction of the BONK memecoin on December 14, 2023, which led to the sale of Solana's Saga phones, as some airdrops targeted mobile phone owners.
However, the bullish momentum was also driven by a significant increase in volume within Solana's decentralized applications (DApps) ecosystem.
This happened even as other competing blockchains experienced outages due to increased activity in December 2023, including Arbitrum, zkSync, and BNB Chain.
After the initial rush for Solana SPL tokens, which resulted in losses of 40%, 41%, and 44% for Jito (JTO), DogWifHat (WIF), and BONK respectively, investors are now questioning whether there are other factors supporting SOL's $42 billion valuation, making it the fourth-largest cryptocurrency excluding stablecoins.
When examining Solana's total value locked (TVL), it becomes evident that demand has been declining, although it has not reached a critical point of concern. SOL's TVL reached its peak at 15.4 million SOL deposits on December 19, 2023, but it saw a 17% decline to 12.8 million SOL on January 5, 2024.
On a positive note, the current TVL reflects a 13% increase from the previous month. In comparison, BNB Chain's TVL declined by 12% in BNB terms during the same period, while the Avalanche network shrank by 8% in AVAX terms.
To assess the impact of SOL token's 9% weekly decline on Solana network demand more accurately, one should analyze activity in terms of DApps volume and active addresses.
Notably, Solana's declining activity in the seven days leading up to January 5, 2024, is evident in terms of active addresses and volumes.
Additionally, Solana's market share in terms of volumes is at 2.6%, which does not position it as a direct competitor to more established blockchains like Ethereum or BNB Chain.
Furthermore, the reduced demand for Solana's DApps is seen across all sectors, including decentralized finance (DeFi), liquid staking, games, social networks, and NFTs.
For instance, the leading decentralized exchange (DEX) Jupiter Exchange faced a 26% weekly decline in volumes, while the NFT marketplace Magic Eden experienced a 24% drop in active addresses.
After analyzing these key indicators for network usage, traders should now consider whether retail investors using leverage have been influenced by recent price action. Perpetual contracts, also known as inverse swaps, include an embedded rate that is typically recalculated every eight hours. A positive funding rate indicates increased demand for leverage among long positions.
The latest data shows a funding rate below 0.02% per eight hours, equivalent to 0.3% per week, which is not significant for most traders.
This is a notable contrast to the 1.7% per week charged to leverage longs (buyers) on January 2, indicating that the excessive demand is no longer present. It's worth mentioning that the funding rate remained positive as SOL dropped below $100 on January 5, erasing the gains from the previous two weeks.
Considering the weakening DApps activity on Solana and the declining interest in leverage longs, it appears that investor appetite for SOL has plateaued. While the possibility of new airdrops could reignite interest, the recent 9% correction seems to align with the decreased demand for the Solana network.
Sources:
https://cointelegraph.com/news/why-is-solana-sol-price-down-9-this-week
