Solana (SOL) Price Rally Could Fade Due to Weak Fundamentals

The latest 250% rally of Solana (SOL) to $25 has shocked many buyers within the cryptocurrency market. On the similar time, merchants who had their eyes on SOL’s unfavorable funding fee within the futures market might need anticipated the transfer greater earlier than anybody else.

It is because extreme unfavorable funding charges, just like the one at Solana under, imply that the majority merchants are on the brief facet, offering a chance for patrons to execute their stops.

SOL funding fee for perpetual swaps. Supply: Coinglass

Whatever the cause behind the value enhance, if sufficient patrons are excited by becoming a member of the transfer greater, it may develop into a medium to long-term uptrend. Nonetheless, Solana’s market and basic evaluation exhibits weak spot, which can probably trigger a pointy correction within the altcoin.

Solana finds a worthy competitor within the NFT area

Solana ranks second when it comes to NFT buying and selling by way of blockchain platforms. Ethereum accounts for almost all of the full NFT buying and selling quantity, with a share of 81.6%. Solana ranks second with a share of 11.6%, based on knowledge from Delphi Digital.

Nonetheless, the ecosystem suffered a setback when two of the most important tasks, DeGods and y00ts, determined to go away Solana. The march of top-performing tasks units a nasty precedent for product builders trying to launch NFTs. So far, Ethereum continues to be the selection of massive manufacturers and neighborhood tasks.

Proportion of NFT buying and selling quantity by blockchain from December 4 to January 4. Supply: Delphi Digital

Moreover, Polygon has began to realize traction after forging key partnerships with manufacturers like Reddit, Starbucks, and Meta. DeGods additionally selected Polygon over Solana after receiving a $3 million grant from Polygon Labs. Polygon’s enterprise improvement group has been acknowledged as the very best within the enterprise.

Nansen utilization knowledge for Polygon and Solana verify the deviation, because the variety of energetic customers on Polygon is growing, whereas Solana utilization has been on a downward development since mid-2022.

NFT merchants by week in Polygon (left) and Solana (proper). Supply: Nansen

Solana has efficiency and confidence points

Solana’s community turned unpopular final 12 months for its frequent and extended outages and hacks. Solely in 2022 there have been greater than 5 cuts. Leap Crypto, a market making fund, has proposed an answer to the issue by creating a backup validator consumer, Firedancer. Its efficiency in the true world is but to be examined.

The whole community commissions metric is without doubt one of the strongest metrics for analyzing exercise on a platform. Solana’s statistics from the token terminal present a downward development in community exercise, with weekly energetic customers declining each quarter since 2022.

Whole value of gasoline in Solana. Supply: terminal token

Along with downtime, the ecosystem additionally misplaced belief amongst customers resulting from main hacks. The $312 million Wormhole Bridge hack is without doubt one of the largest cryptocurrency exploits of 2022. There was additionally an incident the place $8 million SOL was drained from customers’ wallets.

The ultimate blow to confidence got here after FTX collapsed as a result of FTX-Alameda was the most important entity backing the Solana ecosystem. The defunct enterprise capital and trade agency holds round 58 million SOL tokens, or 10.7% of Solana’s whole provide. Of those, 6.7 million might be unlocked yearly via 2025, adopted by 5 million SOL via 2028. These holdings add vital promoting danger.

The FTX chapter additionally took down Serum, the primary supply of liquidity for brand new DeFi requests. On this regard, the chapter of the most important decentralized trade, Mango Markets, additionally drove many DeFi customers out.

Whole worth locked within the Solana DeFi ecosystem. Supply: DefiLlama

Bearish divergence on the SOL/USD chart

In all chance, the latest rise within the value of SOL from $10 to $25 has been the results of a short-squeeze within the futures market. The MACD (Transferring Common Convergence Divergence) indicator exhibits a bearish divergence on the day by day chart of the SOL/USD pair. The Relative Energy Index (RSI), which measures market momentum, has additionally moved into oversold territory, elevating the opportunity of an additional correction.

SOL/USD 1-day chart. Supply: TradingView

There’s a probability that the present bullish momentum will proceed till it hits resistance at $33, which is the breakout zone because the FTX crash and the place the 50-day exponential transferring common at present sits.

The connection between longs and shorts within the futures market continues to indicate a slight bearish bias of 51.5% in shorts towards 48.5% in longs. This may probably gas the final leg of the SOL/USD.

Relationship between longs and shorts in SOL futures. Supply: Coinglass

Conversely, a break above the $33 stage can set off a rally in the direction of the $135 stage. Until the Solana basis makes vital partnerships like Polygon, or exhibits improved utilization knowledge, the above appears extremely unlikely.

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