The Ups and Downs of Solana: An Analysis

The Ups and Downs of Solana: An Analysis

Solana, a popular cryptocurrency, has often been associated with Sam Bankman-Fried, the founder of now-insolvent crypto exchange FTX and hedge fund Alameda Research. Bankman-Fried was an early investor in Solana and supported various projects within its ecosystem during the bullish market of 2020-2021. However, when FTX collapsed in late 2022, the value of Solana and other “Sam coins” plummeted significantly. Solana, in particular, experienced a sharp decline to as low as $9.89, marking a staggering 96.3% drop from its peak at $259.96.

Since the beginning of 2023, Solana has managed to regain its value, witnessing a recovery of 175% and reaching a peak of $27.37. This positive development aligns with the overall growth of the Solana ecosystem.

Unfortunately, in a recent turn of events, Solana faced substantial selling pressure after the Delaware Bankruptcy Court approved the sale of FTX’s digital assets, which included 55.75 million SOL tokens worth $1.062 billion. The announcement sent shockwaves through the market, causing the price of SOL to drop to a weekly low of $17.96. However, there are indications that a counter move to the upside may occur.

Although the sale of FTX’s SOL tokens poses immediate selling pressure, it is important to note that a significant portion of these tokens are locked until 2027. As outlined in an update from the Solana Foundation, over 33 million SOL tokens, representing more than 60% of FTX’s holdings, are yet to be unlocked and sold in the market. Additionally, there are restrictions on the selling volume, with a cap of $50 million for the first week and $100 million for subsequent weeks.

Considering these limitations, it may take approximately 10 to 12 weeks for all the SOL tokens to be unloaded, effectively distributing the selling pressure over time. This phased approach is expected to mitigate the immediate negative impact on the price of SOL. Nonetheless, volatility is to be expected, especially if the futures market provides opportunities for market makers or high-volume traders.

The average daily spot volume on Solana’s spot exchanges is recorded at $338 million, with a weekly scale of around $2.5 billion, according to CoinGecko data. This puts FTX’s selling pressure at a relatively small percentage of 4%. Therefore, the impact of the sale on SOL’s price may not be as significant as some speculators suggest.

It is worth noting that the funding rate for perpetual swap contracts on crypto exchanges experienced a sharp decline to -21.1% per annum on September 13. This negative funding rate indicates a high number of short orders, creating a potential scenario for a short squeeze in the market. A short squeeze occurs when short traders are compelled to buy an asset at a higher price to cover their positions, leading to further price increases. Traders have maintained a bearish inclination, as evident from the open interest volumes for SOL, which increased from $266 million to $327 million over the course of a week.

Technically, SOL has been facing resistance from a descending trendline since July. Furthermore, it is currently trading below its 50-day and 200-day moving averages, which are considered resistance levels at $21.08 and $22.09, respectively. These technical factors may further affect SOL’s price movements in the near future.

Solana’s journey has been full of ups and downs, heavily influenced by the involvement of Sam Bankman-Fried and FTX’s sale of digital assets. While the immediate selling pressure caused a drop in price, the phased unlocking of SOL tokens may help balance the market and mitigate the negative impact. Additionally, the potential for a short squeeze presents opportunities for price surges and a shake-up of the bearish sentiment. Technical resistance levels and market dynamics will continue to play a significant role in determining SOL’s future trajectory.

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