Key takeaways:
SOL’s funding rates indicate a cautious outlook, yet past trends suggest possible short-term price increases.
Falling network activity and rising competition affect SOL, even as treasury strategies and fundamentals provide support.
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 excitement following the US interest rate cut on Wednesday quickly faded as worries about the labor market and inflationary pressures resurfaced.
Over just 48 hours, SOL’s price decreased by 12%, resulting in $112 million in liquidations of leveraged long positions, according to CoinGlass data. This sharp correction has led traders to ponder whether this move indicates a deeper decline or represents an exaggerated response amid a worsening macroeconomic setting.
The funding rate for SOL perpetual futures remained close to zero on Tuesday, reflecting limited demand for leveraged long positions. Under normal market conditions, this indicator usually varies between 6% and 12%, meaning buyers typically incur costs to maintain exposure. The last significant period of strong optimism was on Aug. 14, when the funding rate spiked to 30%, indicating heavy bullish leverage.
Even when SOL briefly reached $253 on Thursday, the funding rate stayed neutral, indicating traders were reluctant to increase their upside bets. Nevertheless, the lack of leverage demand in derivatives markets doesn’t necessarily equate to outright bearish sentiment.
On Aug. 19, the SOL funding rate turned negative after a 13.5% decline over five days. However, the $176 level ultimately acted as a robust entry point as SOL rallied to $206 on Aug. 24. A similar pattern occurred earlier: the negative funding rate on Aug. 4 was followed by a 19% decrease in six days, which also turned into a buying opportunity as SOL rebounded 25% by Aug. 14.
SOL price drop correlates with decreasing network activity and emerging competitors
The subdued enthusiasm surrounding SOL can be attributed to falling 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), claims to be devoid of maximal extractable value and has received open endorsements from Binance founder Changpeng Zhao.
In the last week, active addresses on Solana decreased by 28%, while network fees dropped by 15%. In contrast, Ethereum’s fees climbed by 28% during the same timeframe, and BNB Chain experienced a 74% surge. The emergence of competitors like Hyperliquid has challenged Solana’s perceived advantages, particularly as Aster’s documentation mentions the development of its own blockchain.
Nonetheless, the downside risk for SOL may be limited as more companies embark on strategies to build strategic cryptocurrency reserves. The latest example comes from Australia-based Fitell Corp (FTEL), which issued a $100 million convertible note to establish a “Solana treasury strategy.” The company plans to generate yield through a mix of onchain and derivatives strategies.
Overall market conditions have also impacted sentiment. Concerns about rising 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. Increased risk aversion has reduced 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 solely based on negative perpetual futures funding rates. The Solana network maintains a lead in transaction volume and active addresses, while ranking second in total value locked (TVL), according to DefiLlama metrics. These metrics bolster the argument for a potential price recovery as risk appetite gradually 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.
