Key insights:
The funding rates for SOL indicate a cautious market sentiment, yet historical trends suggest possible short-term price increases.
Lower network activity and increased competition are pressuring SOL, but treasury strategies and fundamentals remain favorable.
Solana’s native token, SOL (SOL), fell to a two-week low of $213 on Tuesday, mirroring growing risk aversion in the cryptocurrency arena. The initial optimism from the US interest rate cut on Wednesday quickly faded as worries about the labor market and rising inflation came back into focus.
In just 48 hours, SOL’s price dropped by 12%, resulting in $112 million in liquidations of leveraged bullish positions, as reported by CoinGlass data. This sharp correction has left traders pondering whether it indicates a deeper downturn or reflects overblown fears in a declining macroeconomic landscape.
The funding rate for SOL perpetual futures was near zero on Tuesday, indicating limited demand for leveraged long positions. Typically, this indicator ranges between 6% and 12% under stable market conditions, suggesting that buyers are paying to keep their positions. The last significant period of bullish sentiment occurred on Aug. 14, when the funding rate jumped to 30%, indicating substantial bullish leverage.
When SOL briefly reached $253 on Thursday, the funding rate remained neutral, indicating traders were reluctant to make additional upside bets. However, the lack of leverage demand in the derivatives market does not necessarily equate to bearish expectations.
On Aug. 19, the SOL funding rate turned negative after a 13.5% drop over five days. Nonetheless, the $176 level became a strong entry point, leading SOL to rally to $206 on Aug. 24. A similar pattern was observed earlier: the negative funding rate on Aug. 4 preceded a 19% decline over six days, which also became a buying opportunity, with SOL rebounding 25% by Aug. 14.
SOL price decline correlates with reduced network activity and new competitors
The waning enthusiasm around SOL can be attributed to a decrease in 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), promotes itself as free from maximal extractable value and has garnered endorsements from Binance founder Changpeng Zhao.
In the last week, active addresses on Solana fell by 28%, and network fees decreased by 15%. In contrast, Ethereum’s fees increased by 28% during the same timeframe, while BNB Chain experienced a 74% rise. The entry of competitors like Hyperliquid has challenged Solana’s perceived edge, particularly as Aster’s documentation points to the development of its own blockchain.
However, the downside risk for SOL may be constrained as more enterprises seek to establish strategic cryptocurrency reserves. The latest initiative comes from Australia-based Fitell Corp (FTEL), which issued a $100 million convertible note to support the launch of a “Solana treasury strategy.” The company aims to generate yield through a blend of onchain and derivatives strategies.
Broader market conditions have also impacted sentiment. Concerns over rising inflation and a weakening US labor market were amplified by US Federal Reserve Chair Jerome Powell on Tuesday, resulting in a 1% drop for the tech-heavy Nasdaq index that day. Heightened risk aversion has led to a $178 billion reduction in cryptocurrency market capitalization since Sunday.
Related: E*Trade to add Bitcoin, Ether, Solana in Morgan Stanley’s crypto expansion
There is no clear signal that SOL traders are anticipating a $200 retest based solely on negative perpetual futures funding rates. The Solana network continues to lead in transaction volume and active addresses, ranking second in total value locked (TVL), according to DefiLlama metrics. These indicators support the case 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.
