Solana’s native token, SOL, has experienced a decline of 9.8% between January 30 and February 1, failing to surpass the $104 resistance level for the fifth time in four weeks. Over a longer period, SOL has dropped by 10.7% in 30 days, while Ether (ETH) and BNB (BNB) have seen smaller declines of 1.2% and 2.6% respectively. This has led investors to question why SOL is underperforming despite its solid network fundamentals.
The cryptocurrency market as a whole has been under pressure since the U.S. Federal Reserve’s decision on January 31 to keep interest rates unchanged at 5.25%. The central bank also stated that the target range should remain unchanged until there is greater confidence in inflation moving towards 2%. Investors are concerned that the crisis in U.S. regional banks could worsen as these institutions are facing pressure due to their fixed-income portfolios yielding below the current interest rate.
Shares of New York Community Bancorp (NYCB), which acquired the collapsed crypto-friendly Signature Bank in 2023, have dropped 42% since January 30 after reporting a $260 million loss in the fourth quarter of 2023. The contagion risk from regional banks has caught the attention of traders and investors, including BitMEX co-founder Arthur Hayes.
Hayes predicts that Bitcoin could initially be negatively affected if the Fed does not choose to provide a quick bailout, but the aftermath for cryptocurrencies could be positive as investors increase their inflation expectations. Whether the stimulus package comes in the form of a renewed Bank Term Funding Program (BTFP) or cash injection through the New York Department of Financial Services (NYDFS), the overall impact would be more money flowing into the monetary system.
So, why is the price of SOL down? One possible reason lies outside of Solana’s ecosystem. At the $104 resistance level, Solana has a market capitalization of $45 billion, which is the same as its direct competitor BNB. However, BNB Chain has a higher total value locked (TVL) of $3.54 billion, compared to Solana’s $1.6 billion, according to DeFiLlama. Additionally, BNB Chain has more active addresses engaging with decentralized applications (DApps) and a much higher 30-day DApps volume compared to Solana.
Despite this, Solana’s recent focus on the Jupiter airdrop on January 31 has been successful, with the project currently having an $800 million market capitalization. The launch of the Jupiter decentralized exchange aggregator was celebrated by Solana Foundation members, as it processed millions of transactions without any issues. Over 438,000 addresses have claimed their JUP airdrop, with some receiving over 5,000 JUP, equivalent to $3,000 at current prices.
Apart from the Jupiter airdrop, Solana’s ecosystem has seen increased demand in decentralized exchanges, non-fungible token (NFT) marketplaces, yield protocols, games, and liquid staking solutions.
Even though SOL has shown strength in its network activity, it still has to prove itself among the top three networks in terms of TVL and volumes in order to break above $104 and surpass BNB’s valuation.
Please note that this article does not provide investment advice or recommendations. Readers should conduct their own research and analysis before making any investment decisions.