Solana's SOL Experiences 22% Drop Amid Declining Network Activity and Investor Interest
Summary:
After reaching $126.30 on Dec. 25, 2023, Solana's native token SOL suffered a 22% drop in eleven days. Despite this, some experts suggest the coin's bullish momentum remains due to a 61% gain from its prior month. The decline in demand for Solana's decentralized applications, across all sectors, coupled with significant losses for certain tokens and a decreasing interest in leveraging long positions, indicate plateauing investor appetite for SOL. The future impact of potential new waves of airdrops on the market and SOL's position remains to be seen.
Experiencing a steep fall of 22% in a quick span of just eleven days, the native token of Solana, SOL (SOL), recently dropped down from its high of $126.30 on Dec. 25, 2023. This devaluation hasn't demurred some analysts that maintain the bullish momentum is very much alive, as even the depleted price of $98.40 still marks a substantial 61% rise compared to the previous month's figures. However, given the prevalent tendency among crypto traders to rapidly adjust their portfolios in search of more lucrative prospects, investors are now left contemplating whether SOL's price downturn aligns with a diminishing sentiment towards Solana's network activity.
Points are raised by some analysts who contend that the impressive rally witnessed by SOL can be traced back to the wave of airdrops that inundated the network, driven largely by the listing of the brand-new JITO token on major centralized exchanges on Dec. 7, 2023. Within mere hours of trading, JITO had already racked up an impressive market capitalization surpassing the $300 million mark. The successive arrival of the BONK memecoin on Dec. 14, 2023, only amplified the frenzy, catalyzing the sell-out of Solana's Saga phones, particularly as certain airdrops were designed to target mobile phone owners.
This bullish momentum was further propelled by a marked rise in volume within Solana's network of decentralized applications (DApps), which occurred amidst competing blockchains staggering under the strain of heightened activity throughout December 2023. Traces of this strain could be seen in the likes of Arbitrum, zkSync, and BNB Chain, all of which suffered from widespread outages.
However, as the initial scramble for acquiring Solana SPL tokens began to wane, leading to 40%, 41%, and 44% losses for Jito (JTO), DogWifHat (WIF), and BONK respectively, investors are now left wondering if there are other factors that could justify SOL's impressive $42 billion valuation, which cements its status as the fourth-largest cryptocurrency excluding stablecoins. After all, an examination of Solana's total value locked (TVL) reveals a decline in demand, although this isn't necessarily cause for alarm just yet.
A brief analysis of Solana's network TVL, from the perspective of SOL, shows a peak of 15.4 million SOL in deposits on Dec. 19, 2023, which subsequently plummeted 17% to 12.8 million SOL by Jan. 5, 2024. On the bright side, this still stands as a 13% increase from the previous month's TVL. This is in stark contrast to BNB Chain's TVL, which saw a 12% contraction in BNB terms, whereas the Avalanche network observed an 8% decline in AVAX terms.
To gauge the influence of SOL token's 9% weekly decrease on the demand for the Solana network, it's pivotal to evaluate the activity in regards to DApps volume and active addresses. It's clear that Solana's decreasing activity during the seven-day period leading up to Jan. 5, 2024, is noteworthy in terms of both active addresses and volumes. Of further interest is Solana's current market share in terms of volumes, standing at a mere 2.6%, a figure far from threatening established blockchains like Ethereum or BNB Chain.
Moreover, it's evident that the demand for DApps via Solana has dwindled across all sectors, whether decentralized finance (DeFi), liquid staking, games, social networks, or NFTs. This is evidenced by a 26% weekly drop in volumes for leading decentralized exchange (DEX) Jupiter Exchange, while NFT marketplace Magic Eden saw a 24% slump in active addresses.
Adding to the indicators of network usage, it's also beneficial for traders to consider the impact the recent SOL price fluctuations may have had on retail investors leveraging their positions. Specifically, they should inspect the rate integrated into perpetual contracts, or inverse swaps, which typically reset every eight hours. An upward trend in the funding rate may suggest a surge in demand for leverage among longer positions.
Data indicates a less than 0.02% funding rate per eight hours, roughly translating to a meagre 0.3% per week, figures that are unlikely to be viewed as significant by the majority of traders. This represents a stark divergence from the 1.7% per week levied on leveraged long positions (buyers) as of Jan. 2, which points toward dwindling demand. Of note is that the funding rate remained positive as SOL dipped below $100 on Jan. 5, effectively erasing the gains achieved during the past two weeks.
In light of the shrinking DApps activity in Solana's realm and the diminishing interest in leveraged longs, it looks like the appetite of investors for SOL has hit a plateau. Perhaps a fresh flurry of airdrops will reignite market curiosity, but as of now, the recent 9% correction seems to reflect the shrinking demand for Solana's network.
This text does not offer any investment advice or recommendations. Given that every investment and trading decision carries its own array of risks, readers should perform their own due diligence before making any choices.
Published At
1/6/2024 12:37:43 AM
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