Reasons Behind Today’s Drop In Solana (SOL) Price

Solana’s price is down today. Can data support a medium-term target of $190?

Source: medium.com

Solana’s native token, SOL, experienced a 10% decline from October 1 to October 9 and is currently struggling to hold the $140 support level. Despite this downward trend, SOL’s 30 day performance closely aligns with the broader altcoin market, which recorded a modest 4% gain in the same timeframe. To evaluate the potential for SOL to reach the $190 level seen in late July, it’s essential to analyze derivatives traders’ positions and compare Solana’s performance against its competitors, focusing on metrics like trading volumes and deposits. Increased activity could indicate future demand for SOL to cover blockchain processing fees.

Conflicting On Chain Metrics Provide No Clear Trend For Solana (SOL) Price

While there’s no guarantee that increased usage of the Solana network will boost SOL’s price, part of its value comes from expectations of adoption. For instance, when new decentralized applications (DApps) launch, traders often accumulate SOL to take part in airdrops, point distributions, and similar incentives.

On-chain analysis can clearly show whether network activity has dropped since SOL’s price fell from $190 in late July. Comparing this data with that of competing blockchains is also useful to assess SOL’s potential for outperformance in the coming months. According to recent data, Solana’s network averaged $1.8 billion in daily volume during the second half of July, compared to a more recent average of $1.2 billion, a 33% decline. This decrease is more significant than that of its competitors, as Ethereum’s volumes fell only 7%, from $1.5 billion per day to the current $1.4 billion.

In contrast, BNB Chain’s activity, measured by on-chain volumes, increased by 48%, rising from $485 million per day in late July to an average of $720 million now. This indicates that there’s currently no strong basis for SOL to outperform its competitors based solely on expectations of demand for network processing fees.

However, not all DApps require high transaction volumes; many, such as staking services, games, collectibles, and social networks, may not rely on large volumes. Therefore, it’s important to examine the growth in Solana’s network deposits, measured by total value locked (TVL). An increase in deposits suggests a decrease in the short-term supply available for sale, which analysis indicates could be favorable for SOL’s price.

On October 8, Solana’s total value locked (TVL) stood at 37.7 million SOL, up from 35.8 million SOL a month earlier. While this 5% increase may appear modest, it reflects a different trend compared to competitors. Ethereum’s TVL declined by 2% to 18.7 million ETH over the same period, and BNB Chain’s deposits fell by 6% to 7.7 million BNB.

Notable positive TVL highlights for Solana include Raydium, which saw a 35% increase over thirty days, reaching $1.21 billion, and Jupiter, which rose 17% to $1.23 billion. Additionally, Sanctum experienced a 29% rise in deposits, totaling $962 million. Thus, despite lower on-chain volumes, Solana's network activity remained strong, as inflows into its DApps helped offset the overall decline.

Derivatives Traders Show Increasing Confidence In Bullish SOL Positions

Demand for leverage can be assessed through SOL futures contracts, which serve as key indicators of investor risk appetite. In an optimistic market, the funding rate on perpetual contracts tends to turn positive. Funding rates between 0.2% and 1.2% per month typically indicate neutral market conditions, while rates below this range are viewed as bearish. Recent data shows that the funding rate for SOL briefly dipped into negative territory on October 8 but returned to a neutral position on October 9. The current fee of 0.01% every 8 hours translates to 0.9% per month, which is manageable for traders holding leveraged long positions.

Both on-chain and derivatives data suggest that SOL’s price continues to track the broader altcoin market, indicating there’s currently no strong basis for expecting outperformance toward $190 or higher.

Disclaimer: FameEX makes no representations on the accuracy or suitability of any official statements made by the exchange regarding the data in this area or any related financial advice.