Solana (SOL) has been closely associated with Sam Bankman-Fried, the founder of now-insolvent crypto exchange FTX and hedge fund Alameda Research. As an early investor in the project, Bankman-Fried invested in numerous Solana ecosystem projects during the 2020-2021 bull market. However, when FTX collapsed towards the end of 2022, SOL and other “Sam coins” experienced a significant drop in value, with SOL plummeting to lows of $9.89, down 96.3% from its peak of $259.96.
Since the beginning of 2023, Solana’s price has staged a recovery, gaining 175% and reaching a peak of $27.37, coinciding with the growth of the ecosystem. But recently, SOL has faced tremendous selling pressure after the Delaware Bankruptcy Court approved the sale of FTX’s digital assets, including 55.75 million SOL worth $1.062 billion. This news caused the SOL price to touch a weekly low of $17.96. However, on September 14, SOL gained around 4%, and CoinGlass data shows that around $800,000 worth of longs were liquidated since the prior day.
Despite the selling pressure, crypto trader MartyParty believes that the majority of FTX’s SOL stake is locked until 2025-2028, alleviating concerns about an immediate flood of selling. MartyParty tweeted about Alameda Research’s SOL wallet, which contains 26,740,743 staked SOL, scheduled to be sold in the FTX liquidation. However, the 2025-2028 locked SOL will not be affected by the sale.
It’s important to note that most of FTX’s SOL tokens are locked until 2027, according to an update released by the Solana Foundation. More than 33 million SOL tokens, representing over 60% of FTX’s holdings, are yet to be unlocked and sold in the market. Additionally, there are caps and limits on the conversion of crypto to fiat by FTX, which will limit the selling pressure in the short term. Assuming the creditors can sell all the SOL tokens, it would take approximately 10 to 12 weeks to unload their total holdings, distributing the selling pressure over time. This gradual selling may help stabilize the price of SOL.
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However, the price of SOL may still exhibit volatility due to the futures market and the presence of market makers or high-volume traders. The 30-day average daily volume on spot exchanges for SOL is $338 million, with a weekly volume of around $2.5 billion. The selling pressure from FTX represents only a small percentage, around 4%, of the daily and weekly trading volume. MartyParty dismisses concerns about this potential selling pressure, stating that it will have a minimal impact on SOL’s overall market.
In addition to the selling pressure, there is a possibility of a short squeeze for SOL. CoinGlass data shows that the funding rate for perpetual swap contracts on crypto exchanges plunged to -21.1% per annum on September 13, indicating a crowding of short orders. This suggests that traders have maintained a bearish inclination towards SOL. However, negative funding rates have resulted in flat price returns so far. Nevertheless, there is a possibility of a short squeeze, where short traders are forced to buy back SOL at a higher price to close their positions as the asset price increases.
Technically, SOL has faced resistance from a descending trendline since July and is trading below its 50- and 200-day moving averages. These moving averages, located at $21.08 and $22.09 respectively, could act as resistance levels for SOL. However, with the unlocking of FTX’s SOL tokens and the potential short squeeze, the price of SOL may experience increased volatility in the coming weeks.
In conclusion, Solana (SOL) has experienced fluctuations in its price due to the collapse of FTX and the approval of the sale of FTX’s digital assets. However, the majority of FTX’s SOL tokens are locked until 2027, and the gradual release of these tokens over time may help stabilize the price of SOL. Additionally, there is the possibility of a short squeeze, which could lead to a price surge for SOL. Traders should be aware of the potential for increased volatility in the SOL market and conduct their own research before making any investment decisions.
