Ethereum's Rise Drives SOL Token Value Down Amid Increasing Outflow from Solana Ecosystem
Summary:
Solana's SOL token has experienced a decrease in value over the past days due to factors such as the strong performance of its blockchain rival Ether (ETH) and increasing capital withdrawal from the Solana ecosystem. The Future approval of spot Ether exchange-traded funds (ETFs) in the U.S might lead to capital being redirected towards Ethereum, signaling potential challenges for Solana. Additionally, a notable decline in total value locked (TVL) in Solana might reflect reduced investor confidence.
Solana's native SOL token experienced a roughly 2% decrease in value over the past day, settling at $173.20. This is part of a downward adjustment that began a couple of days ago, culminating in a cumulative decline of about 8.25% so far. Key factors driving SOL's depreciating value include the strong performance of rival blockchain Ether (ETH) and increasing capital withdrawal from the Solana ecosystem.
SOL's price has been on a downward trajectory since the likelihood of approval for spot Ether exchange-traded funds (ETFs) in the U.S has increased. For example, the SOL/ETH pair value has seen an approximately 22.65% decrease since May 20, coinciding with the SEC's request for Ether ETF applicants to update their 19b-4 filings.
ETFs, which allow investors to take on exposure to a specific asset without direct ownership, are a favored investment strategy. Consequently, if spot Ether ETFs gain approval, many institutional investors and market participants may prefer to invest in Ethereum via these vehicles. This expected shift in investment interest could be detrimental to Solana and the SOL token, as capital could be withdrawn from the Solana ecosystem and redirected towards Ethereum.
In May, the total value locked (TVL) within the Solana platform fell notably. By May 22, there were 27.68 million locked SOL, marking a decrease from the monthly high of 29.49 million SOL. This decrease in Solana's TVL became more rapid following the May 20 news of possible spot Ether ETFs approval. This indicates the news about Ether ETFs may have contributed to the capital leaking from the Solana ecosystem.
The reduction in Solana TVL signifies dwindling trust in the platform, resulting in sell-offs that contribute to the dropping SOL price. On a technical note, the price of Solana fell after its daily relative strength index (RSI) neared the overbought level (70). Moreover, a resistance synthesis around $186, including the 0.786 Fibonacci retracement line and a short-term upward trendline, amplified the selling pressure.
As of May 23, SOL was hovering within a Fibonacci level band, with $186 acting as resistance and $173.50 as support. However, on a broader scale, the cryptocurrency is exhibiting an ascending parallel channel trend, implying an increased possibility of descending towards the lower trendline in May. This equates to SOL's 50-day exponential moving average (50-day EMA) settling around $155.75, a decrease of roughly 10.70% from the current price points. This analysis is purely informational and should not be considered as legal or investment advice.
Published At
5/23/2024 4:33:58 PM
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