Solana (SOL), a cryptocurrency that has recently gained attention due to its price surge, experienced a brief moment of victory after Ripple won a partial victory against the United States Securities Exchange and Commission (SEC) regarding XRP’s position as a security. This ruling led to a 48.09% increase in the token’s price, reaching a peak of $32.40. However, despite this positive news, there are indications that a sustainable long-term bullish trend may be unlikely for Solana.
The recent surge in Solana’s price managed to recover the losses incurred when the SEC considered SOL a security in its lawsuit against Binance and Coinbase in June 2023. However, the $30 level has emerged as a significant resistance level, hindering further bullish movement. Token Terminal data reveals that the total fees paid on Solana are still below Q3 2022 levels, indicating that the network’s activity has yet to fully revive. This can be attributed to the network’s close ties to Sam Bankman-Fried, the founder of the FTX exchange, whose ecosystem suffered greatly after the FTX collapse. Additionally, Solana’s active user data shows that active addresses are currently trending near yearly lows, suggesting difficulties in finding a product market fit in decentralized finance (DeFi).
Solana’s DeFi liquidity, represented by total deposits, has decreased by 97% since its peak in November 2021, falling from over $10 billion to $317 million. Despite this setback, the NFT ecosystem on Solana has thrived and maintained the third position in monthly NFT trading volume since June 15, indicating some resilience in this area. However, trading volumes have decreased significantly since the FTX collapse, suggesting limited progress. In the gaming sector, Solana’s most popular games have fewer than 10,000 monthly users, significantly lower than competing networks such as Near, Polygon, Ronin Network, and Arbitrum. This stagnant growth further emphasizes the unchanged fundamentals of Solana over the past few weeks.
Solana’s development team has been actively working on upgrades to improve the blockchain’s speed and scalability, aiming to introduce a next-generation validator client called Firedancer. This upgrade, developed by Web3 infrastructure development and investment firm Jump Crypto, is expected to increase Solana’s speed to over 1 million transactions per second and is slated for release in late 2023. The success of the blockchain post-Firedancer implementation will play a crucial role in shaping its price trend, particularly in high-frequency applications like trading and gaming, as well as its ability to minimize network downtime risks. However, until then, the project’s fundamentals do not provide strong support for a new bullish trend.
From a technical analysis perspective, the SOL/USD pair has breached the resistance from the long-term descending trendline, indicating a potential end to the long-term bearish trend. However, buyers face significant obstacles at the $30 level, which serves as both a support and resistance level. Confirmation of a long-term bullish trend would only come with sustained support above this level. Therefore, there is a possibility that SOL may retest the trendline around $18.00 before making any substantial upward movement. In case of a downside, the yearly lows and long-term horizontal level at $12.76 may provide support to buyers. The weekly Relative Strength Indicator (RSI) suggests that there is still room for upside, indicating the potential for further price appreciation.
In the SOL/BTC pair, resistance is encountered at the yearly peak level of approximately 0.00114 Bitcoin (BTC). Moreover, the 50-day weekly moving average at the 0.00104 BTC level has acted as a crucial resistance, coinciding with the price peak on June 14. The perpetual swap market also suggests a likely pullback due to the significant increase in long interest, which raises the possibility of a contrarian trade to the downside. The funding rate for SOL perpetual swap contracts, which reflects the sentiment of perpetual traders, has surged to a two-month high. This accumulation of long orders may trigger a long squeeze as more sophisticated traders target the stop-loss orders of long players.
While Ripple’s favorable court ruling against the SEC provides some hope for SOL’s position as a security in the United States, there are numerous regulatory hurdles to overcome. The SEC’s ongoing lawsuits against Coinbase and Binance could impact Solana’s growth and create further uncertainties in the market. Therefore, it is important to consider these challenges and regulatory factors when evaluating the sustainability of Solana’s price surge.
Although Solana’s price briefly surged and recovered from previous losses, the network’s usage and market charts indicate challenges that may hinder a sustainable long-term bullish trend. Regulatory uncertainties, limited DeFi liquidity, stagnant growth in the gaming sector, and technical resistance levels are factors that need to be carefully monitored. While upgrades to improve the overall performance of the blockchain are in progress, the success of these upgrades and Solana’s ability to gain traction in high-frequency applications will significantly impact its price trend. With these considerations in mind, caution should be exercised when evaluating Solana’s potential for sustained price appreciation in the medium to long term.
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