Solana (SOL) is currently retesting the important support at $165, the same low that was formed earlier in the week. If the asset closes its daily positions below this range, it could see a further 25% drop to $122 in the coming weeks.
Bitcoin and Solana’s Correlation Is Growing
Solana’s 8% correction in the past day could be linked to the overall market decline. After the FOMC meeting announced unchanged rates, BTC fell 3%, which caused SOL to fall to $166.
SOL has seen a sharp decline as data shows that both assets currently share a correlation index of 0.67.
As you can see from the chart, the index has been declining for most of Q4 2023 and has been gradually rising throughout 2024. During that period, SOL has outperformed TC by 385% and 57%. Year-to-date returns for 2024 have been more similar, at 53% and 66%, respectively.
The market collapse of SOL also led to strong liquidations in the futures and perpetual markets. Open interest fell from $2.78 billion to $2.39 billion in the last 48 hours, meaning $400 million in leveraged positions were liquidated. Liquidations accumulated to around $14 million over the past day.
Pump.fun and Memecoin FUD Raises Concerns
Pump.fun, a Solana memecoin generator, has been in the spotlight for the past few weeks, with its cumulative profits surpassing Ethereum earlier this week.
However, Solana’s ecosystem has come under scrutiny due to low liquidity pools where “bot trading” has been generating inorganic volume. For example, one unusual project had liquidity of just $48 but had close to $11 million in volume. Bots also generated $28,000 in fees just from wash trading with the project.
The situation has divided the community, with some analysts speculating that bot activity is normal in cryptocurrencies. Cryptocurrency researcher Ryan Conner said that bots account for 50% of internet traffic, and most chains try to maximize value by taking bot activity into account. He said:
“It is wrong to define bot activity as illegal or to diminish the value of bot activity.”
On the other hand, some supporters have expressed concern that the only winners in the Mimecoin circle are trading bots and their distributors. Take celebrity coins, for example. More than 30 celebrity Mimecoins launched on Solana have lost an average of 99% since reaching their all-time highs.
Solana’s “double bottom” is on the borderline between success and failure.
Solana is currently retesting its recent near-term lows, and the asset has completed a liquidity sweep. The relative strength index, or RSI, is also nearing 50, meaning the indicator is nearing neutral between buyers and sellers.
From a bullish perspective, Solana needs to maintain its daily position above $165, otherwise it could sharply retest its long-term equivalent low near $122, which would represent a 25% drop from its current market value.
Still an active positive trend is Solana’s double bottom pattern, which was confirmed earlier this week and is now trading below the neckline of the pattern.
Trader Tardigrade, a cryptocurrency analyst and content creator, also noticed this pattern and believes that SOL could experience a period of volatility between $190 and $200. However, he added:
“The target for this double bottom is $320.”
This article is for general information purposes only and is not intended to be, and should not be taken as, legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.