Solana (SOL) Value Soars Due to Rising Ethereum Gas Fees and Record Influx of Capital
Summary:
The value of Solana (SOL) increased by over 60% in the week ending on Dec 24, 2023, largely driven by a coinciding surge in Ethereum's gas fees that prompted users to explore blockchain platforms with lower transaction costs. Additional factors contributing to Solana's value rise include recent airdrops, such as the Bonk meme coin, and a record influx of capital, with Solana-based investment funds attracting $10.6 million in the week ending Dec 16, 2023. However, technical indicators suggest potential market oversaturation and risk of sell-off ahead. This article doesn't provide investment advice.
The value of Solana (SOL) has surged by over 60% in the week ending on December 24, reaching a remarkable $118 - a price not seen in one and a half years. What's causing this increase in SOL's value? The upsurge in Solana's value this week coincides with a rise in gas fees within rival blockchain Ethereum's (ETH) ecosystem. Notably, the expense involved in transacting on the Ethereum blockchain momentarily surpassed $10 earlier this week, with a few users reportedly facing charges of $150 to execute a transaction worth $50.
Seven-day performance of Ethereum gas fees. Source: EtherScan.io
Gas fees in Ethereum have seen a dip of over 50% from the high of this week. Still, this brief upsurge has spurred users to seek out alternative blockchain platforms that offer lower transaction costs - a development which has likely positively influenced Solana's price in recent months. For example, active addresses on Solana have swelled to almost 400% in the past three months, while Ethereum has seen just a 3% increase, as stated by Messari.
Daily active addresses for Solana vs Ethereum. Source: Messari/Artemis
The spike in Solana's daily active addresses and price is also largely due to recent airdrops on its blockchain, particularly the offerings of the Bonk meme coin. Furthermore, Solana's decentralized exchange volume has surged to unprecedented heights this week.
Volume of Solana DEX in the week commencing Dec. 17. Source: Defi Llama
Solana's lower transaction costs cater to the creation of new addresses, particularly useful for individuals seeking airdrops. For example, Solana’s fees have stayed below $0.01 consistently, as per CoinCodex. However, the reduced fees have their own disadvantages, as argued by some critics on social media.
The surge in Solana's value was preceded by a week of successful fund flows. Specifically, Solana-centric investment funds pulled in $10.6 million in the week ending Dec. 16, outperforming inflows of leading competitors like Bitcoin (BTC) and Ethereum. This month, Solana funds have seen inflows of $14.1 million, the highest in the cryptocurrency sector.
Fund flow by assets. Source: CoinShares
Solana's price spike could be losing its momentum according to technical indicators. On the three-day chart, notwithstanding the formation of higher highs in price, its relative strength indicator (RSI) and volumes have posted lower highs. Technically, such deviation suggests an emerging bearish divergence, hinting at a potential sell-off on the horizon.
SOL/USD three-day price chart. Source: TradingView
If bearish forces gain the upper hand, SOL's price is at risk of sliding toward its 0.382 Fib level near $100 by the end of the year. A decisive close below $100 could drive the price down to the 0.236 Fib level near $66. On the other hand, a close above the 0.5 Fib line around $130 could trigger a rally towards the 0.618 Fib line near $157.50.
Please note, this piece does not offer investment guidance or suggestions. Every investment or trading action carries risk, and individuals are encouraged to conduct their independent research before making a decision.
Published At
12/24/2023 7:34:49 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.