Key takeaways:
SOL’s funding rates demonstrate cautious sentiment; however, historical trends point to possible short-term price increases.
Decreased network activity and growing competition impact SOL, even as treasury strategies and fundamentals continue to be supportive.
Solana’s native token, SOL (SOL), fell to a two-week low of $213 on Tuesday, reflecting increased risk aversion in the cryptocurrency market. The initial optimism following the US interest rate cut on Wednesday quickly faded as worries about the labor market and rising inflation resurfaced.
Within 48 hours, SOL’s price dropped by 12%, resulting in $112 million worth of liquidations for leveraged bullish positions, according to CoinGlass data. This sudden correction has led traders to question whether this movement indicates a more significant downturn or is merely an overreaction amid a challenging macroeconomic landscape.
The funding rate for SOL perpetual futures was near zero on Tuesday, indicating limited demand for leveraged long positions. Under normal market conditions, this metric typically ranges from 6% to 12%, meaning buyers are paying to maintain their positions. The last significant period of extreme optimism occurred on Aug. 14, when the funding rate skyrocketed to 30%, suggesting heavy bullish leverage.
When SOL briefly reached $253 on Thursday, the funding rate remained neutral, indicating that traders were reluctant to increase their bullish bets. Still, a lack of leverage demand in derivatives markets does not necessarily suggest bearish expectations.
On Aug. 19, the SOL funding rate turned negative following a 13.5% drop over five days. Nevertheless, the $176 mark ultimately served as a robust entry point as SOL surged to $206 by Aug. 24. A similar pattern was observed earlier: the negative funding rate on Aug. 4 was followed by a 19% drop in six days, which subsequently became a buying opportunity with a 25% rebound by Aug. 14.
SOL price drop correlates with decreasing network activity and emerging competitors
The subdued enthusiasm surrounding SOL can be attributed to declining activity on the Solana network, as traders increasingly focus on derivatives trading on Aster. This platform, launched on BNB Chain by YZI Labs (formerly Binance Labs), positions itself as free of maximal extractable value and has received public endorsement from Binance founder Changpeng Zhao.
In the last week, active addresses on Solana decreased by 28%, and network fees fell by 15%. In contrast, Ethereum’s fees grew by 28% in the same timeframe, and BNB Chain saw a 74% rise. The emergence of competitors like Hyperliquid has tested Solana’s perceived strengths, especially with Aster’s documentation highlighting the development of its own blockchain.
Nonetheless, the downside risk for SOL may be limited as more firms pursue strategies to establish strategic cryptocurrency reserves. The latest initiative came from Australia-based Fitell Corp (FTEL), which issued a $100 million convertible note to support the initiation of a “Solana treasury strategy.” The company plans to generate yield by deploying a mix of on-chain and derivatives strategies.
Wider market conditions have also influenced sentiment. Concerns about increasing inflation and a weakening US labor market were emphasized by US Federal Reserve Chair Jerome Powell on Tuesday, leading the tech-heavy Nasdaq index to close 1% lower that day. Heightened risk aversion has reduced the cryptocurrency market capitalization by $178 billion since Sunday.
Related: E*Trade to add Bitcoin, Ether, Solana in Morgan Stanley’s crypto expansion
There is no definitive indication that SOL traders anticipate a $200 retest based exclusively on negative perpetual futures funding rates. The Solana network continues to lead in transaction volume and active addresses while holding the second spot in total value locked (TVL), according to DefiLlama metrics. These factors bolster the argument for a potential price recovery as risk appetite slowly returns.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
