Following a brief surge to $151 on June 16, the native SOL token of Solana has seen a 24% decline since June 7. This decline has been more significant than the overall drop in the cryptocurrency market capitalization, which decreased by 14% during the same period.
This indicates that Solana’s challenges are more prominent compared to the general decline in interest in cryptocurrencies. Various indicators, such as onchain activity on the Solana network and the demand for leveraged positions, suggest that the bearish trend of SOL is likely to persist. If demand remains stagnant, there is a possibility of a retest of the $130 level or even lower.
One factor contributing to the decreased interest in cryptocurrencies is the strong performance of the S&P 500 Index, which reached a record high on June 17. The stock market gains have been primarily driven by tech stocks, and positive second-quarter earnings reports are anticipated due to recent employment and consumer data. Investors are also factoring in a high likelihood of the Federal Reserve in the United States initiating interest rate cuts by September.
While the cryptocurrency market offers higher potential returns, investors are concerned about the sustainability of the U.S. economy’s growth, especially given the high interest rates. This poses a significant risk for altcoins like SOL, as Bitcoin (BTC) and Ether (ETH) have better access to institutional funds through exchange-traded funds (ETFs).
Even if there is a rally in the cryptocurrency market in the coming months, the competition among smart contract-focused blockchains will intensify. Several applications on the Solana network provide asset bridges to other blockchains, competing in terms of yield, airdrops, liquidity, and token launches.
The native staking reward rate of Solana is only 1.3% higher than the SOL token inflation rate, unlike Ethereum, which offers a 2.8% effective reward rate due to its burn mechanism, resulting in minimal annualized inflation. This has impacted Solana’s total value locked (TVL), which has remained below $30 million since May.
Arthur Hayes, the co-founder and former CEO of BitMEX, predicts that Solana may not emerge as a top base layer decentralized application (DApp) network within the next one to three years. He suggests Aptos as a potential leader in this space, citing its modular approach to transaction processing.
In addition to competition from other layer-1 alternatives, Solana faces pressure from Ethereum’s layer-2 ecosystem, with a TVL exceeding $40 billion. Blockchains like Arbitrum, Base, and Optimism have surpassed Solana in terms of DApps activity.
For a deeper insight into market sentiment, traders are advised to monitor the derivatives markets. The funding rate for SOL perpetual futures has remained relatively neutral over the past week, indicating a lack of excitement among traders.
Given the current activity on the Solana network and the sentiment in the derivatives market, the likelihood of SOL breaking below the $130 support level in the near future remains high. This article serves as general information and should not be considered legal or investment advice. The opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.