Solana’s native token SOL has experienced a remarkable surge of 58.6% in just five days, reaching a high of $64 on Nov. 11. However, a subsequent two-day retracement of 11.3% to $54 has prompted investors to question whether this signals a fading bullish momentum or merely a temporary price adjustment.
When compared with other leading altcoins, SOL’s performance has been less impressive. Since its peak on Nov. 11, Avalanche’s AVAX has rallied by 17%, Ether gained 1%, and BNB traded down 2%. This comparison underscores that SOL has underperformed in the broader altcoin market. Therefore, the 5.5% daily decline on Nov. 13 is unlikely to be tied to macroeconomic or sector drivers, such as the potential approval of a spot BTC exchange-traded fund.
Despite the recent decline in SOL’s price, a seven-day gain of 35% suggests that investors should not hastily adopt a bearish outlook, as this could merely be a natural correction following Solana’s significant outperformance. However, it’s essential not to disregard Solana network’s fundamentals, which include on-chain metrics and SOL’s derivatives markets.
Perpetual contracts, also known as inverse swaps, carry an embedded funding rate that is typically charged every eight hours. The seven-day funding rate for SOL aligns with that of Bitcoin and Ether, pointing to a slightly higher demand for leverage longs. The 0.4% weekly cost is standard, considering that cryptocurrency’s market capitalization has grown by 10.5% over the past two weeks, reaching $1.4 trillion, its highest level since May 2022.
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Analyzing on-chain data from semi-centralized networks with very low transaction fees carries inherent risks, as inflating these metrics is relatively easy, particularly those related to decentralized finance.
A case in point is the revelation in August 2022 by a former developer from Saber, a previously esteemed decentralized exchange on Solana, who disclosed that a significant portion of the application’s total value locked (TVL) was manipulated through double-counting. Data providers have since improved their services to prevent such obvious inflation of metrics. Currently, Solana’s TVL stands at $535 million, which, while a substantial figure, is relatively modest compared with its close competitors. It’s noteworthy that Solana’s TVL lags behind Avalanche’s $614 million, despite Solana’s impressive $22.7 billion market capitalization.
Moreover, the accumulation of seen-day fees for Solana, totaling $660,000, does not seem to justify significant future demand for SOL. Even if this number were to increase significantly, it would still fall short of the token supply increase, which has risen by 3.7% in the past 90 days, equivalent to $65 million per week.
In addition to the regular issuance of SOL, there’s the vesting schedule related to the failed FTX exchange and Alameda Research. The bankruptcy estate has been permitted to sell up to $100 million in digital assets per week, including 55.75 million SOL in September 2023.
Solana’s emergence as a strong player in the nonfungible token (NFT) market was one of its notable selling points, given the high costs associated with issuing and maintaining collections on Ethereum, the leading blockchain. However, this advantage has not been sufficient to attract the highest-value items and whales to Solana’s NFT markets.
Despite the seven-day average transaction fee on the Ethereum network increasing to the current $7.6, its total weekly NFT volume continues to outpace Solana’s by more than seven times. This data underscores that investors and creators consider factors beyond transaction costs. Nevertheless, Solana maintains a significant position in the market, alongside the leaders, Bitcoin and Ethereum.
In conclusion, while SOL’s recent price correction may have raised concerns for investors, it’s important to consider the broader market context and the underlying fundamentals of the Solana network. The correction could be a natural adjustment following a period of significant outperformance. Additionally, the network’s on-chain metrics and derivatives markets provide valuable insight into the current state and future potential of SOL. However, investors should remain cautious and continue to monitor the developments in the Solana ecosystem.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
