Home CryptoMarket Solana (SOL) price rally could fizzle out due to weak fundamentals

Solana (SOL) price rally could fizzle out due to weak fundamentals

by CryptoFan
0 comment

Solana’s (SOL) recent 250% rise to $25 has shocked many investors in the cryptocurrency market. At the same time, a trader who had his eye on SOL’s negative funding rate in the futures market could have predicted a bullish move earlier than others.

That’s because an excessively negative funding rate, like Solana’s shown below, means that the majority of traders are on the sell side, providing an opportunity for buyers to execute stops.

SOL funding rate for perpetual swaps.Source: Coinglass

Regardless of the reason behind the price rally, if enough buyers are interested in joining the bull move, it could turn into a medium to long-term bullish trend. Market analysis shows weakness, likely triggering a sharp correction in altcoins.

Solana finds a worthy competitor in the NFT space

Solana ranks #2 for NFT trading across blockchain platforms. Ethereum dominates with an 81.6% share of total NFT trading volume. According to Solana, he has the second largest pie with his 11.6% share. data From Delphi Digital.

But the ecosystem stepped back when the two biggest projects, DeGods and y00ts, decided to move away from Solana. Leaving the best performing projects sets a bad precedent for product developers considering launching NFTs. To this day, Ethereum remains the go-to choice for big brands and community projects.

Share of NFT trading volume by blockchain from December 4th to January 4th. Source: Delphi Digital

Additionally, Polygon is starting to gain traction after building significant partnerships with brands like Reddit, Starbucks, and Meta. DeGods also chose Polygon over Solana after receiving his $3 million grant from Polygon Labs. Polygon’s business development team is recognized as the best in the business.

Usage data from Nansen for Polygon and Solana confirms diversion from mid-2022 onwards, with Solana usage trending downward, while Polygon’s number of active users surges.

Weekly NFT traders for Polygon (left) and Solana (right).Source: Nansen

Solana has performance and trust issues

Solana’s network became unpopular last year due to frequent and prolonged network outages and hacks. In 2022 alone he had more than 5 power outages. Market-making fund Jump Crypto has proposed a solution to this problem by developing Firedancer, a backup validator client. Its actual performance has not yet been tested.

The Total Network Charges metric is one of the most powerful metrics for analyzing activity across the platform.Solana stats from token terminal Showcase From 2022 onwards, the number of weekly active users will decrease quarter by quarter, and network activity will trend downward.

Total gas consumed by Solana.Source: Token Terminal

In addition to downtime, the ecosystem also lost trust among users due to a massive hack. The $312 million wormhole bridge hack is he one of the biggest cryptocurrency exploits of 2022. There was also an incident where his $8 million of his SOL was leaked from a user’s wallet.

The final blow to trust came after FTX collapsed, as FTX-Alameda was the largest entity underpinning the Solana ecosystem. hold Approximately 58 million SOL tokens, or 10.7% of Solana’s total supply. Of these, 6.7 million will be unlocked annually through 2025, followed by 5 million SOL through 2028. These holdings add significant sales risk.

The collapse of FTX also brought down Serum, a major source of liquidity for new DeFi applications.

Total value locked in Solana’s DeFi ecosystem. Source: DefiLlama

Bearish Divergence Spotted on SOL/USD Chart

Perhaps the recent surge in SOL price from $10 to $25 was due to a short squeeze in the futures market. The Moving Average Convergence Divergence (MACD) indicator shows a bearish divergence on the daily SOL/USD chart. The Relative Strength Index (RSI), which measures market momentum, has also moved into oversold territory, increasing the likelihood of a further correction.

SOL/USD 1-day chart.Source: Trading View

The current bullish momentum is likely to continue until it reaches the $33 resistance. This is the breakdown area of ​​the FTX collapse and where the 50-day exponential moving average is currently located.

The ratio of longs to shorts in the future market shows a slight bearish trend of 51.5% for shorts versus 48.5% for longs. This could provide fuel for SOL/USD’s final rally.

Long to short ratio of SOL futures.Source: Coinglass

Conversely, a breakout of $33 can lead to a rally towards $135. Unless the Solana Foundation establishes a major partnership like Polygon or shows improved usage data, the above seems highly unlikely.