Solana’s native token, SOL (
SOL
), reached a four-week low on June 11, dipping to the $145 support level. Within a short span of four days, SOL experienced a significant 15.8% decline, falling short compared to the broader cryptocurrency market, which saw a 10% decrease in total capitalization during the same period. However, amidst this downturn, two key indicators suggest that the macroeconomic instability could present a buying opportunity for SOL.
Impact of macroeconomic events on SOL’s price
There is growing concern among investors that the stock market may undergo a correction following mixed economic signals, leading to the United States Federal Reserve (Fed) potentially postponing interest rate cuts. The CME
FedWatch
tool now indicates a 48% likelihood of rates remaining unchanged until September, a notable increase from 39% just a month ago. Meanwhile, after reaching a peak on June 7, the S&P 500 index has reached a plateau, with investors eagerly awaiting comments from Fed Chair Jerome Powell on June 12.
Stuart Kaiser, head of U.S. equity trading strategy at Citigroup, has warned that a Consumer Price Index (CPI) rise exceeding 0.4% compared to the previous month could trigger a widespread market selloff, potentially causing the S&P 500 to plummet by 1.5% to 2.5%, as reported by Yahoo Finance. Kaiser also cautioned that the S&P 500 might see its most significant single-day movement since March 2023. The release of U.S. inflation data on June 12 is highly anticipated ahead of the Fed’s rate decision.
Despite these challenges, SOL investors are optimistic about the possibility of a U.S. exchange-traded fund (ETF) listing, even though regulatory bodies have not yet supported cryptocurrencies beyond Bitcoin (
BTC
) and Ether (
ETH
). Brian Kelly, CEO of BKCM Digital Asset Fund, views SOL as a strong contender for an ETF, especially following discussions by Bitwise’s chief investment officer, Matt Hougan, on how real-world applications of Solana could attract institutional investments.
The recent underperformance of SOL can also be attributed to internal network issues, particularly concerning maximum extractable value (MEV). Validators on the Solana network were found exploiting traders through
sandwich attacks
—manipulating transaction prices to profit at the expense of retail investors. In response, the Solana Foundation removed these validators from its delegation program, reducing incentives for such harmful practices.
Despite the recent sharp decline of 15% in just four days, various indicators suggest that investor confidence in SOL remains firm, hinting at a possible positive turnaround once macroeconomic conditions stabilize.
On-chain and derivatives metrics signal potential upside for Solana
Interestingly, the demand for leverage through SOL futures has remained steady despite market volatility. Perpetual contracts, also known as inverse swaps, feature an embedded rate that, when positive, indicates increased demand for leverage among long positions. Conversely, a negative funding rate indicates a need for more leverage among short positions.
Data reveals that SOL’s funding rate has remained consistent at 0.01% every eight hours since June 8, translating to approximately 0.2% per week. This stability in demand between bullish and bearish positions after a 15% price drop in SOL showcases market resilience. If bulls were heavily leveraging, one would expect a notable rise in the funding rate, which is not currently observed.
On-chain data from the Solana network reflects a surge in user numbers and transaction volume. While some analysts raise concerns about potential data manipulation due to Solana’s low fees, this issue is not exclusive to Solana and affects other platforms like Ethereum’s layer-2 solutions and competitors such as BNB Chain.
Solana is presently ranked as the fourth largest blockchain in terms of 24-hour active addresses engaging with decentralized applications (DApps), with notable activity on platforms like Jupiter Exchange and Raydium. However, its daily transaction volume of $119 million falls significantly below Polygon’s $292 million and Arbitrum’s $1 billion.
Despite the setback to $145 on June 11, SOL derivatives and the Solana network have remained resilient, indicating that traders and users remain steadfast. The potential for SOL to regain a price of $170 appears plausible, particularly if the Solana Foundation’s efforts to address maximum extractable value (MEV) issues enhance the overall user experience.
This article serves as general information and should not be construed as legal or investment advice. The opinions expressed here are solely those of the author and do not necessarily represent the views of Cointelegraph.