Despite Sharp Drop, Resilient Metrics Indicate Future Upside for Solana's SOL Token
Summary:
Solana's native token, SOL, experienced a sharp 15.8% decline over four days, hitting a four-week low. Despite its recent underperformance, mainly due to global economic instability and issues within its network, several indicators suggest continued investor confidence. The potential for a US exchange-traded fund listing and a steady demand for SOL futures remain bright spots. While the network user numbers and transaction volumes have been rising, challenges like manipulation due to low fees persist. Despite these odds, SOL's resilience indicates a possible recovery once economic conditions stabilize.
Solana's in-house cryptocurrency, SOL (SOL), hit a monthly low on June 11, dipping to the $145 support mark. This sharp drop of 15.8% in just four days outstripped the general crypto market's fall of 10% total capitalization in the same timeframe. However, this period of economic unpredictability could potentially provide a window for buying into SOL, as two primary indicators suggest. SOL's price has been negatively impacted due to global financial turbulence.
Market investors are cautious, pondering a stock market realignment in response to ambiguous economic signals, which could cause the Federal Reserve (Fed) in the U.S. to postpone lowering interest rates. The CME FedWatch platform shows that traders now anticipate a 48% chance of rates remaining unchanged until September, a noticeable rise from 39% last month. Following a record peak on June 7, the S&P 500 index has leveled out, with all eyes on Fed Chair Jerome Powell's comments on June 12.
Citigroup’s Head of U.S. Equity Trading Strategy, Stuart Kaiser, opined that should the Consumer Price Index (CPI) rise by more than 0.4% compared to the previous month, it could instigate a comprehensive market downturn, potentially lowering the S&P 500 by 1.5% to 2.5%, as Yahoo Finance reported. Additionally, Kaiser expressed that the S&P 500 may witness its most significant single-day shift since March 2023. The U.S. Consumer Inflation data, due for release on June 12, is eagerly awaited ahead of the Fed's rate decision.
SOL investors, however, remain optimistic about a potential listing of a U.S. exchange-traded fund (ETF), despite regulators so far only endorsing Bitcoin (BTC) and Ether (ETH). BKCM Digital Asset Fund's founder and CEO, Brian Kelly, views SOL as a potential contender for an ETF listing, particularly considering Matt Hougan, the chief investment officer of Bitwise, discussing how Solana's practical applications could entice institutional investment.
SOL’s recent performance shortfall is partly tied to network problems, including issues concerning maximum extractable value (MEV). Some Solana network validators were found to be performing sandwich attacks, manipulating transaction costs to gain profits at the expense of everyday investors. In response, the Solana Foundation removed these validators from its delegation service, therefore reducing the incentives for such harmful behavior.
Despite witnessing a significant 15% fall in just a matter of days, several indicators hint at investor confidence in SOL remaining unshaken. This optimistic outlook could trigger a positive shift once the global economic situation steadies. Solana's on-chain and derivative metrics suggest a possible upside.
Interestingly, the leveraged demand for SOL futures has remained resilient despite the worsening market conditions. Perpetual contracts, also known as inverse swaps, contain a rate signifying leverage demand rises among long (buy) positions when it is positive. On the other hand, a negative funding rate reveals a demand for more leverage among short (sell) positions.
Data reveals SOL's funding rate has stayed constant at 0.01% per every eight hours since June 8, which is around 0.2% per week. This balance between bullish and bearish positions following SOL's 15% price drop is a sign of market robustness. A significant spike in the funding rate would be seen if bulls resorted heavily to leverage, which isn't the case right now.
In terms of user growth and transaction volume, on-chain data from the Solana network has been increasing. Some experts suggest that Solana's low fees might lead to manipulated data, an issue affecting other platforms like Ethereum's layer-2 channels and rivals such as BNB Chain.
Currently, as per the decentralized applications (DApps) interaction by 24-hour active addresses, Solana is ranked fourth among top blockchains, with platforms like Jupiter Exchange and Raydium recording significant activity. But, Solana's daily transaction volume of $119 million is considerably less than that of Polygon’s $292 million, and Arbitrum’s $1 billion.
Despite plummeting to $145 on June 11, SOL derivatives and Solana's network have held steady, showing that neither traders nor users appear ready to bow out. It appears plausible for SOL to bounce back to a $170 price point, particularly if Solana Foundation’s moves to counteract the effects of maximum extractable value (MEV) improve the overall customer experience.
This news is purely for informational purposes and should not be viewed as legal or investment advice. The author's views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily align with or represent those of Cointelegraph.
Published At
6/11/2024 10:12:36 PM
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