Solana’s native token, SOL, has experienced a decline of 9.8% between Jan. 30 and Feb. 1, failing to break above the $104 resistance for the fifth time in four weeks. When looking at a longer time frame, SOL has dropped by 10.7% in the past 30 days, while Ether (ETH) and BNB (BNB) have seen declines of 1.2% and 2.6% respectively during the same period. This has led investors to question why SOL is underperforming, especially considering the strong fundamentals of the network.
From a broader perspective, the cryptocurrency market has been under pressure since the U.S. Federal Reserve’s decision on Jan. 31 to keep interest rates unchanged at 5.25%. The central bank stated that the target range would remain unchanged until there is “greater confidence that inflation is moving sustainably toward 2%.” Investors are concerned that the crisis in U.S. regional banks could worsen as these institutions are struggling with fixed-income portfolios that are yielding below the current interest rate.
Shares of New York Community Bancorp (NYCB), which acquired the collapsed crypto-friendly Signature Bank in 2023, have dropped by 42% since Jan. 30 after reporting a $260 million loss in the fourth quarter of 2023. In March 2023, Signature Bank was officially shut down and taken over by the New York Department of Financial Services (NYDFS). This contagion risk has caught the attention of traders and investors, including BitMEX co-founder Arthur Hayes.
Hayes believes that if the Fed does not opt for a quick bailout, Bitcoin could initially be negatively affected, but the aftermath for cryptocurrencies could be positive as investors will have higher inflation expectations. Whether the stimulus package comes in the form of a renewed Bank Term Funding Program (BTFP) or a cash injection through the NYDFS, the overall impact would be more money flowing into the monetary system.
So, why is the price of SOL down? The answer may lie outside of Solana’s ecosystem. At $104, Solana has a market capitalization of $45 billion, which matches its direct competitor BNB. However, BNB Chain has a total value locked (TVL) of $3.54 billion, more than double Solana’s $1.6 billion, according to DeFiLlama.
In terms of decentralized applications (DApps) activity, Solana lags behind BNB Chain. BNB Chain has had 3.3 million total active addresses engaging with DApps in the past 30 days, surpassing Solana’s 2.65 million. Similarly, BNB Chain’s DApps 30-day volume amounted to $20.8 billion, a significant difference from Solana’s $2.75 million.
Although Solana has seen a surge in demand recently, including the successful launch of the Jupiter decentralized exchange (DEX) aggregator and the Jupiter (JUP) airdrop, there is still a need for Solana to prove itself among the top 3 networks in terms of TVL and volumes.
In conclusion, while Solana’s network activity remains strong, it faces challenges in surpassing the valuation of BNB and breaking above the $104 resistance. Investors should conduct their own research and exercise caution when making investment decisions.
Note: This article does not provide investment advice.