Solana (SOL) worth rally might fizzle out attributable to weak fundamentals

Solana’s utilization information and ecosystem growth don’t assist the latest bullish rally, elevating the chance of a SOL worth correction.

Solana’s (SOL) latest 250% rally to $25 has shocked many buyers within the crypto market. At the identical time, merchants who had eyes on the destructive funding fee for SOL within the futures market might have anticipated the bullish transfer forward of others.

It’s as a result of extreme destructive funding charges, just like the one in Solana displayed under, implies that almost all of merchants are on the quick aspect, offering a chance for patrons to run their stops.

SOL funding fee for perpetual swaps. Source: Coinglass

Regardless of the rationale behind the worth improve, if sufficient patrons are all in favour of becoming a member of the bullish transfer, it may flip right into a medium-to-long-term bullish development. However, Solana’s basic and market evaluation reveals weak point, which can extra possible trigger a steep correction within the altcoin.

Solana finds a worthy competitor in NFT house

Solana ranks second by way of NFT buying and selling throughout blockchain platforms. Ethereum instructions the lion’s share of the whole NFT buying and selling quantity with an 81.6% share. Solana has the second greatest pie with an 11.6% share, in response to information from Delphi Digital.

However, the ecosystem acquired a setback when two of the most important tasks in DeGods and y00ts determined to shift away from Solana. The departure of top-performing tasks units a foul precedent for product builders trying to launch NFTs. To date, Ethereum stays the go-to selection for large manufacturers and group tasks.

Share of NFT buying and selling quantity by blockchains from Dec. 4 to Jan. 4. Source: Delphi Digital

Moreover, Polygon has began gaining traction after forging key partnerships with manufacturers like Reddit, Starbucks, and Meta. DeGods additionally selected Polygon over Solana after receiving a $3 million grant from Polygon Labs. Polygon’s enterprise growth workforce has been acknowledged as one of the best in enterprise.

The utilization information from Nansen for Polygon and Solana confirms the diversion the place the variety of lively customers on Polygon is spiking whereas Solana’s utilization has been in a downtrend since mid-2022.

NFT merchants per week on Polygon (left) and Solana (proper). Source: Nansen

Solana has efficiency and belief points

Solana’s community grew to become unpopular final 12 months due to frequent and prolonged community outages and hacks. There have been greater than 5 outages in 2022 alone. Jump Crypto, a market-making fund, has proposed an answer to the issue by growing a backup validator shopper, Firedancer. Its real-world efficiency is but to be examined.

The whole community charges metric is likely one of the strongest indicators for analyzing exercise throughout a platform. Solana’s statistics from token terminal showcase a downward development within the community exercise, with weekly lively customers declining every quarter since 2022.

Total fuel spent on Solana. Source: token terminal

Besides downtime, the ecosystem additionally misplaced belief amongst customers attributable to massive hacks. The $312 million Wormhole bridge hack is likely one of the largest crypto exploits of 2022. There was additionally an incident the place $8 million SOL was drained from customers’ wallets. 

The last blow to belief got here after FTX collapsed as a result of FTX-Alameda was the most important entity backing the Solana ecosystem. The defunct enterprise capitalist agency and alternate holds round 58 million SOL tokens, or 10.7% of Solana’s whole provide. Of these, 6.7 million shall be unlocked yearly till 2025, adopted by 5 million SOL till 2028. These holdings add a major sell-off threat.

FTX’s collapse additionally took down Serum, the main liquidity supply for brand spanking new DeFi functions. In this regard, the failure of the most important decentralized alternate, Mango Markets, additionally drove out many DeFi customers.

Total locked worth in Solana’s DeFi ecosystem. Source: DefiLlama

Bearish divergence noticed in SOL/USD chart

In all chance, the latest SOL worth surge from $10 to $25 was the results of a short-squeeze within the futures market. The Moving Average Convergence Divergence (MACD) indicator reveals a bearish divergence within the day by day SOL/USD chart. The Relative Strength Index (RSI) which measures the market’s momentum additionally moved to oversold territory, elevating the potential for additional correction.

SOL/USD 1-day worth chart. Source: TradingView

There’s an opportunity that the current bullish momentum will proceed until it meets the resistance at $33, which is the breakdown space from the FTX collapse and the place the 50-day Exponential Moving Average presently sits.

The long-to-short ratio sooner or later market nonetheless reveals a slight bearish inclination of 51.5% in shorts versus 48.5% in longs. This will possible present gasoline for the final leg up in SOL/USD.

Long to quick ratio for SOL futures. Source: Coinglass

Conversely, a breakout above $33 degree could cause a surge towards $135. Unless the Solana basis establishes main partnerships like Polygon, or present improved utilization information, the above appears extremely unlikely.

The views, ideas and opinions expressed listed below are the authors’ alone and don’t essentially replicate or symbolize the views and opinions of Cointelegraph.

This article doesn’t include funding recommendation or suggestions. Every funding and buying and selling transfer includes threat, and readers ought to conduct their very own analysis when making a call.