SOL Price Drops Amid Market Correction, FTX Auction, and Rising Dollar Demand
Summary:
Solana's token, SOL, has witnessed a decrease of over 2.1% today. This dip follows a correction cycle that started the previous day after reaching a local high of approximately $160. Factors such as a reduction in Solana's total value locked (TVL) and an increasing demand for the U.S. dollar have affected SOL's performance negatively. Additionally, FTX's move to auction its SOL holdings at a discount to fund bankruptcy-related compensations has also contributed to SOL's price drop. Despite the current downward trend, the potential evolution of a 'cup-and-handle' pattern could see SOL's price rise to around $205 by May.
Solana's indigenous cryptocurrency, SOL (SOL), is witnessing a downturn today, experiencing a dip of over 2.1% to about $145 as of May 8. This downturn follows a correction that commenced the previous day, when the SOL price hit a local peak of nearly $160, but has since descended by around 9%. SOL's price struggle today is influenced by various factors including a decrease in total value locked (TVL) throughout Solana's ecosystem, and a heightened interest in the U.S. dollar.
With respect to FTX's efforts to indemnify victims of its bankruptcy, Solana's price began its downward trajectory on May 7, not long after FTX declared it had sufficient funds to rectify the losses incurred by its customers during its 2022 November crash. Once FTX liquidates all its assets, it expects to have as much as $16.3 billion in cash to distribute. The company has approximately $11 billion in outstanding debts to customers and other private creditors.
Although lesser-ranking creditors usually receive nominal returns during bankruptcy proceedings, FTX has leveraged a cryptocurrency market surge, specifically with Solana, which constituted 34.2% of its holdings. To secure compensation funds, FTX auctioned its SOL assets at sharp discounts, selling almost two-thirds of its SOL reserves to Galaxy Trading, Pantera Capital, and Neptune Digital Assets at a 63% discount in April. The discounted Solana sales to hedge funds seemingly acted as a warning signal, causing SOL's price to drop by up to 37%, post-auction.
Notably, the prevailing sentiment among Solana traders mirrored this following FTX's guarantee of possessing more than enough funds to satisfy creditors, largely due to FTX retaining a considerable volume of Solana tokens, estimated between 11 million and 15 million SOL, which may be subject to additional discounted auctions. However, a four-year vesting schedule prevents these tokens from being traded until the expiry period.
Solana's TVL experienced a decline, hitting a new monthly nadir, coinciding with SOL's price decrease today. As of May 8, Solana's TVL was 26.92 million SOL, reaching a monthly low compared to 28.22 million the previous day. Given that SOL tokens are typically staked or locked in various protocols for DeFi activities like lending, trading or liquidity provision, a drop in TVL shrinks the demand for SOL, leading to lower prices under similar market conditions.
Adding to Solana's subpar performance is the ongoing recovery of the U.S. dollar index (DXY), reflecting the dollar's potency against a group of major foreign currencies. Remarkably, the index buoyed to 105.64 on May 8, marking an increase of over 1% from its local trough of $104.52 three days ago. As of May 8, the correlation coefficient of -0.75 between DXY and SOL/USD over 30 days suggests an inverse relationship between the two assets. This could be due to most SOL traders opting for the safety of the dollar following the hawkish statement of Minneapolis Fed President Neel Kashkari.
Solana's price drop today is part of a correction that kicked off upon exceeding its four-hour Relative Strength Index (RSI) of 70, which is the overbought area typically signaling impending market dips. Moreover, the ongoing correction seemingly indicates a cup-and-handle pattern, which typically resolves as the price surpasses the neckline and ascends to approximately the height difference between the cup's bottom and neckline. This could potentially push SOL's upside target to around $205 by May, marking approximately a 40% increase from the current price levels. Please note that this information serves general informational purposes and should not be interpreted as legal or investment guidance.
Published At
5/8/2024 2:49:48 PM
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