Solana’s SOL Token Faces Price Correction Amidst Declining Network Activity

Has the Solana Bull Market Ended? Cointelegraph Examines Data to Determine Why SOL Price Dropped by 9% This Week

Why is Solana (SOL) down 9% this week?

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Solana’s native token SOL experienced a significant price correction, plunging 22% in just eleven days from its peak of $126.30 on December 25, 2023. While some may argue that the current price of $98.40 still represents a 61% gain from the previous month, investors are questioning whether the declining network activity confirms a deteriorating sentiment towards SOL’s token price.

The Airdrop Frenzy: A Catalyst for SOL’s Rally?

Analysts attribute SOL’s rally to the airdrop frenzy that took place in the network. The launch of JITO token on December 7, 2023, resulted in a market capitalization of over $300 million within hours of trading, sparking excitement and driving up SOL’s price. This success was followed by the launch of meme coin BONK on December 14, 2023, which even caused Solana’s Saga phone to sell out as some airdrops specifically targeted mobile phone owners.

Sustained Momentum Through Increased DApps Activity

Apart from the airdrop frenzy, SOL’s bullish momentum was also supported by a surge in volume within Solana’s decentralized applications (DApps) ecosystem. This was particularly remarkable considering that multiple competing blockchains experienced outages due to increased activity in December 2023. Despite the initial rush for Solana SPL tokens resulting in losses for Jito (JTO), DogWifHat (WIF), and BONK, investors still question whether there are other factors that support SOL’s $42 billion valuation, making it the fourth-largest cryptocurrency excluding stablecoins.

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Examining Solana’s Total Value Locked (TVL)

When examining Solana’s total value locked (TVL), we observe a declining trend, although it’s not yet a point of concern. TVL reached its peak at 15.4 million SOL deposits on December 19, 2023, but experienced a 17% decline to 12.8 million SOL on January 5, 2024. However, it’s worth noting that the current TVL still reflects a 13% increase from the previous month. In comparison, BNB Chain’s TVL declined by 12% in BNB terms during the same period, while the Avalanche network shrank by 8% in AVAX terms.

Declining DApps Activity Raises Questions

To further assess the impact of SOL token’s 9% weekly decline on Solana network demand, it is essential to analyze activity in terms of DApps volume and active addresses. Solana’s declining activity in the seven days leading up to January 5, 2024, stands out in terms of both active addresses and volumes. Additionally, Solana’s market share in terms of volumes is currently at 2.6%, indicating that it is not a direct competitor to more established blockchains like Ethereum or BNB Chain.

Furthermore, the reduced demand for Solana’s DApps spreads across all sectors, including decentralized finance (DeFi), liquid staking, games, social networks, and NFTs. For instance, the leading decentralized exchange (DEX) Jupiter Exchange witnessed a 26% weekly decline in volumes, and the NFT marketplace Magic Eden experienced a 24% drop in active addresses.

Looking at Retail Investors and Leverage

Retail investors using leverage have often played a significant role in the price action of cryptocurrencies. Therefore, it is crucial to examine whether they have been influenced by the recent price correction. Perpetual contracts, also known as inverse swaps, provide insights into leverage demand among long positions. A positive funding rate signifies increased demand for leverage.

The latest data shows a funding rate below 0.02% per eight hours, equivalent to 0.3% per week. This is not significant for most traders, especially compared to the 1.7% per week charged to leverage longs (buyers) on January 2. The absence of excessive demand indicates that investor appetite for SOL seems to have plateaued. It’s also worth noting that the funding rate remained positive as SOL dropped below $100 on January 5, erasing the gains from the previous two weeks.

The Future of SOL and Solana Network

Considering the weaknesses in Solana’s DApps activity and declining interest in leverage longs, it appears that investor appetite for SOL has diminished. While a new wave of airdrops could potentially spark further interest, the recent 9% correction aligns with the decreased network demand. As Solana continues to develop and attract new projects, it is essential to monitor network activity, TVL, and investor sentiment closely to gauge future price movements.

Q&A Section

1. Why did SOL experience a price correction? SOL experienced a price correction due to a combination of factors such as declining network activity, reduced demand for decentralized applications (DApps), and the absence of excessive leverage long positions.

2. What caused SOL’s rally previously? SOL’s rally was fueled by an airdrop frenzy, where the launch of tokens like JITO and BONK caught the attention of traders and investors, leading to a surge in SOL’s price.

3. What is Solana’s ranking in terms of DApps volumes compared to other blockchains? Solana currently has a market share of 2.6% in terms of DApps volumes, indicating that it is not a direct competitor to more established blockchains like Ethereum or BNB Chain.

4. Is there any indication of future price movements for SOL? While it is challenging to predict future price movements accurately, monitoring factors such as network activity, total value locked (TVL), and investor sentiment can provide insights into potential price trends.

Reference Links:

1. Solana’s SOL Dips 1000%, Slips Back in BNB Crypto Ranking
2. Solana Nears $100 as Meme Coin Frenzy Continues to Drive Rally
3. Bitcoin Price Pumps Towards $45,000 as SEC Expected to Approve Multiple BTC ETF Applications
4. Why is Bitcoin Price Down Today?

Images: 1. Source: DefiLlama

2. Source: DappRadar

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