Solana (SOL) price rally could fizzle out due to weak fundamentals

Solana’s (SOL) caller 250% rally to $25 has shocked galore investors successful the crypto market. At the aforesaid time, traders who had eyes connected the antagonistic backing complaint for SOL successful the futures marketplace could person anticipated the bullish determination up of others.

It’s due to the fact that excessive antagonistic backing rates, similar the 1 successful Solana displayed below, implies that the bulk of traders are connected the abbreviated side, providing an accidental for buyers to tally their stops.

SOL backing complaint for perpetual swaps. Source: Coinglass

Regardless of the crushed down the terms increase, if capable buyers are funny successful joining the bullish move, it tin crook into a medium-to-long-term bullish trend. However, Solana's cardinal and marketplace investigation shows weakness, which volition much apt origin a steep correction successful the altcoin.

Solana finds a worthy rival successful NFT space

Solana ranks 2nd successful presumption of NFT trading crossed blockchain platforms. Ethereum commands the lion's stock of the full NFT trading measurement with an 81.6% share. Solana has the 2nd biggest pastry with an 11.6% share, according to data from Delphi Digital.

However, the ecosystem received a setback erstwhile 2 of the largest projects successful DeGods and y00ts decided to displacement distant from Solana. The departure of top-performing projects sets a atrocious precedent for merchandise developers looking to motorboat NFTs. To date, Ethereum remains the go-to prime for large brands and assemblage projects.

Share of NFT trading measurement by blockchains from Dec. 4 to Jan. 4. Source: Delphi Digital

Moreover, Polygon has started gaining traction aft forging cardinal partnerships with brands similar Reddit, Starbucks, and Meta. DeGods besides chose Polygon implicit Solana aft receiving a $3 cardinal assistance from Polygon Labs. Polygon’s concern improvement squad has been recognized arsenic the champion successful business.

The usage information from Nansen for Polygon and Solana confirms the diversion wherever the fig of progressive users connected Polygon is spiking portion Solana’s usage has been successful a downtrend since mid-2022.

NFT traders per week connected Polygon (left) and Solana (right). Source: Nansen

Solana has show and spot issues

Solana’s web became unpopular past twelvemonth due to the fact that of frequent and lengthy web outages and hacks. There were much than 5 outages successful 2022 alone. Jump Crypto, a market-making fund, has projected a solution to the occupation by processing a backup validator client, Firedancer. Its real-world show is yet to beryllium tested.

The full web fees metric is 1 of the astir almighty indicators for analyzing enactment crossed a platform. Solana’s statistic from token terminal showcase a downward inclination successful the web activity, with play progressive users declining each 4th since 2022.

Total state spent connected Solana. Source: token terminal

Besides downtime, the ecosystem besides mislaid spot among users owed to ample hacks. The $312 cardinal Wormhole span hack is 1 of the largest crypto exploits of 2022. There was besides an incidental wherever $8 cardinal SOL was drained from users' wallets. 

The last stroke to spot came aft FTX collapsed due to the fact that FTX-Alameda was the biggest entity backing the Solana ecosystem. The defunct task capitalist steadfast and speech holds astir 58 cardinal SOL tokens, oregon 10.7% of Solana's full supply. Of these, 6.7 cardinal volition beryllium unlocked annually until 2025, followed by 5 cardinal SOL until 2028. These holdings adhd a important sell-off risk.

FTX's illness besides took down Serum, the starring liquidity root for caller DeFi applications. In this regard, the nonaccomplishment of the largest decentralized exchange, Mango Markets, besides drove retired galore DeFi users.

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

Bearish divergence spotted successful SOL/USD chart

In each probability, the caller SOL terms surge from $10 to $25 was the effect of a short-squeeze successful the futures market. The Moving Average Convergence Divergence (MACD) indicator shows a bearish divergence successful the regular SOL/USD chart. The Relative Strength Index (RSI) which measures the market’s momentum besides moved to oversold territory, raising the anticipation of further correction.

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

There’s a accidental that the contiguous bullish momentum volition proceed till it meets the absorption astatine $33, which is the breakdown country from the FTX illness and wherever the 50-day Exponential Moving Average presently sits.

The long-to-short ratio successful the aboriginal marketplace inactive shows a flimsy bearish inclination of 51.5% successful shorts versus 48.5% successful longs. This volition apt supply substance for the past limb up successful SOL/USD.

Long to abbreviated ratio for SOL futures. Source: Coinglass

Conversely, a breakout supra $33 level tin origin a surge toward $135. Unless the Solana instauration establishes large partnerships similar Polygon, oregon amusement improved usage data, the supra seems highly unlikely.

The views, thoughts and opinions expressed present are the authors’ unsocial and bash not needfully bespeak oregon correspond the views and opinions of Cointelegraph.

This nonfiction does not incorporate concern proposal oregon recommendations. Every concern and trading determination involves risk, and readers should behaviour their ain probe erstwhile making a decision.