Key takeaways:
SOL’s funding rates indicate a cautious sentiment, but historical trends suggest potential short-term price increases.
Decreasing network activity and rising competition affect SOL, although treasury strategies and fundamentals are still supportive.
Solana’s native token, SOL (SOL), fell to a two-week low of $213 on Tuesday, reflecting increased risk aversion throughout the cryptocurrency market. The initial optimism following the US interest rate cut on Wednesday quickly faded as worries about the labor market and persistent inflationary pressures resurfaced.
In just 48 hours, SOL’s price dropped 12%, resulting in $112 million in liquidations of leveraged bullish positions, as per CoinGlass data. This sudden correction has led traders to question whether it signifies a deeper downside or represents exaggerated fear in a declining macroeconomic scenario.
The funding rate for SOL perpetual futures was near zero on Tuesday, indicating low demand for leveraged long positions. Under typical market conditions, this metric usually ranges from 6% to 12%, meaning buyers normally pay to maintain their exposure. The last major period of excessive optimism occurred on Aug. 14, when the funding rate surged to 30%, reflecting significant bullish leverage.
When SOL briefly reached $253 on Thursday, the funding rate remained neutral, indicating traders were reluctant to increase their upside bets. Nonetheless, the lack of leverage demand in derivatives markets does not necessarily indicate outright bearish expectations.
On Aug. 19, the SOL funding rate turned negative following a 13.5% decline over five days. However, the $176 level ultimately proved to be a solid entry point as SOL surged to $206 by Aug. 24. A similar pattern was observed earlier when the negative funding rate on Aug. 4 was followed by a 19% drop in six days, which became a buying opportunity, resulting in a 25% rebound by Aug. 14.
SOL price decline correlates with diminished network activity and emerging competitors
The lack of excitement around SOL can be attributed to a drop in activity on the Solana network, as traders increasingly shift focus to derivatives trading on Aster. Launched on BNB Chain by YZI Labs (formerly Binance Labs), the platform promotes itself as free of maximal extractable value and has received open endorsement from Binance founder Changpeng Zhao.
In the last seven days, active addresses on Solana fell by 28% while network fees decreased by 15%. In contrast, Ethereum’s fees increased by 28% during the same timeframe, while BNB Chain saw a 74% rise. The emergence of rivals such as Hyperliquid has undermined Solana’s perceived advantages, particularly as Aster’s documentation references plans for its own blockchain development.
Nevertheless, the downside risk for SOL may be limited as more companies adopt strategies to build their cryptocurrency reserves. A recent initiative from Australia-based Fitell Corp (FTEL) involved issuing a $100 million convertible note aimed at launching a “Solana treasury strategy.” The company’s objective is to generate yield through a mix of on-chain and derivatives strategies.
Wider market conditions have also negatively impacted sentiment. Concerns over rising inflation and a softening US labor market were highlighted by US Federal Reserve Chair Jerome Powell on Tuesday, leading to a 1% drop in the tech-heavy Nasdaq index. Increased risk aversion has resulted in a $178 billion decrease in cryptocurrency market capitalization since Sunday.
Related: E*Trade to add Bitcoin, Ether, Solana in Morgan Stanley’s crypto expansion
There is no clear evidence that SOL traders anticipate a $200 retest based solely on negative perpetual futures funding rates. The Solana network continues to excel in transaction volume and active addresses, while holding the second position in total value locked (TVL), according to DefiLlama metrics. These figures support the possibility of a price recovery as risk appetite begins to return.
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.
