Solana’s native token SOL (SOL) has seen a rapid decline of 22% in just eleven days, dropping from its peak of $126.30 on December 25, 2023. While some analysts argue that the bullish momentum is still intact, with the current price of $98.40 representing a 61% gain from the previous month, crypto traders are known to swiftly shift their portfolios when better opportunities arise. As a result, investors are now questioning whether the declining sentiment towards SOL’s token price is confirmed by Solana’s network activity.
According to some analysts, SOL’s rally can be attributed to the frenzy surrounding airdrops that took place on the network. This frenzy began with the listing of the newly launched JITO token on major centralized exchanges on December 7, 2023. Within the first few hours of trading, JITO achieved a market capitalization of over $300 million, leading to increased interest in SOL. This success was followed by the launch of the BONK memecoin on December 14, 2023, which caused Solana’s Saga phone to sell out as some airdrops specifically targeted mobile phone owners.
Despite experiencing outages on multiple competing blockchains in December 2023 due to increased activity, Solana’s bullish momentum was supported by a significant surge in volume within its decentralized applications (DApps) ecosystem. However, after the initial rush for Solana SPL tokens subsided, resulting in losses for tokens such as Jito (JTO), DogWifHat (WIF), and BONK, investors are now questioning whether there are other factors supporting SOL’s $42 billion valuation that makes it the fourth-largest cryptocurrency excluding stablecoins.
Looking at Solana’s total value locked (TVL), it is evident that demand has been declining, although it is not yet a cause for concern. Solana’s TVL, measured in SOL terms, 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 is important to note that the current TVL reflects a 13% increase from the previous month, whereas BNB Chain’s TVL declined by 12% in BNB terms and the Avalanche network shrank by 8% in AVAX terms during the same period.
To better understand the impact of SOL token’s 9% weekly decline on Solana network demand, it is crucial to analyze activity in terms of DApps volume and active addresses. Notably, Solana’s declining activity in the seven days leading up to January 5, 2024, is evident in terms of active addresses and volumes. Solana’s market share in terms of volumes is currently at 2.6%, which positions it as less direct competition to more established blockchains like Ethereum or BNB Chain.
Furthermore, the reduced demand for Solana’s DApps extends across various sectors, including decentralized finance (DeFi), liquid staking, games, social networks, and NFTs. For example, the leading decentralized exchange (DEX) Jupiter Exchange experienced a 26% weekly decline in volumes, while the NFT marketplace Magic Eden witnessed a 24% drop in active addresses.
Another indicator to consider is the influence of retail investors using leverage on the recent price action. The funding rate for perpetual contracts, which are also known as inverse swaps, is typically recalculated every eight hours. A positive funding rate indicates increased demand for leverage among long positions. However, the latest data shows a funding rate below 0.02% per eight hours, equivalent to 0.3% per week, which is not significant for most traders. This is in stark contrast to the 1.7% per week charged to leverage longs on January 2, indicating that the excessive demand is no longer present. It is worth noting that the funding rate remained positive as SOL dropped below $100 on January 5, erasing the gains from the previous two weeks.
Taking into consideration the weakness in Solana’s DApps activity and the declining interest in leverage longs, it appears that investor appetite for SOL has plateaued. While a new wave of airdrops may reignite interest in the market, the recent 9% correction aligns with the decreased demand for the Solana network.
It is important to note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making any decisions.