Solana’s native token, SOL (SOL), hit a four-week low on June 11, testing the $145 support level. In four days, SOL plummeted 15.8%, underperforming the broader cryptocurrency market, which saw total capitalization fall 10% over the same period. Nonetheless, two key indicators suggest that macroeconomic instability may have created a buying opportunity for SOL.
Macroeconomic events have a negative impact on SOL prices
Investors are concerned that the U.S. Federal Reserve’s delay in cutting interest rates could cause stock markets to adjust themselves to mixed economic signals. According to the CME FedWatch tool, traders now have a 48% chance that interest rates will remain the same through September, up from 39% a month ago. After hitting a record high on June 7, the S&P 500 remained stagnant, with investors awaiting comments from Federal Reserve Chairman Jerome Powell on June 12.
Stuart Kaiser, head of U.S. equity trading strategy at Citigroup, suggested that a rise in the Consumer Price Index (CPI) of more than 0.4% month-on-month could trigger a broad market sell-off, potentially sending the S&P 500 down 1.5% to 2.5%. . Courtesy of Yahoo Finance. Kaiser also warned that the S&P 500 could experience its largest daily swing since March 2023. US inflation data scheduled to be released on June 12th is highly anticipated ahead of the Federal Reserve’s interest rate decision.
SOL investors are hoping to list a potential US exchange-traded fund (ETF) despite regulators not supporting cryptocurrencies other than Bitcoin (BTC) and Ethereum (ETH). Brian Kelly, founder and CEO of BKCM Digital Asset Fund, considers SOL a strong candidate for an ETF, especially after Matt Hougan, Chief Investment Officer of Bitwise, discussed how real-world applications of Solana could attract institutional investment.
SOL’s recent poor performance may be due to issues within the network, particularly issues related to maximum extractable value (MEV). Validators on the Solana network were found to be exploiting traders through sandwich attacks. In other words, they manipulate transaction prices to extract profits to the detriment of retail investors. In response, the Solana Foundation has excluded these validators from the delegation program, reducing the incentive for such harmful behavior.
Despite experiencing a steep 15% decline in just four days, several indicators suggest that investor confidence in SOL remains intact. This sentiment could soon lead to a positive turn once macroeconomic conditions stabilize.
Solana on-chain and derivatives indicators indicate potential upside.
Notably, demand for leverage via SOL futures was unaffected by worsening market conditions. Perpetual contracts, also known as inverse swaps, feature an implied interest rate, which when positive indicates increased demand for leverage on a long (buy) position. Conversely, a negative funding ratio suggests that short positions require more leverage.
Data shows SOL’s funding rate has remained steady since June 8 at 0.01% per eight hours, or about 0.2% per week. Demand stability between bullish and bearish after a 15% drop in SOL prices is an indicator of market resilience. If the bulls had resorted to excessive leverage, funding rates would rise significantly, which is not the case currently.
On-chain data from the Solana network shows an increase in user count and transaction volume. Some analysts believe that Solana’s low fees may encourage data manipulation, but this problem is not limited to Solana and also affects other platforms such as Ethereum’s layer 2 solutions and competitors such as the BNB chain.
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Solana currently ranks as the 4th largest blockchain in terms of 24-hour active addresses interacting with decentralized applications (DApps), and is seeing notable activity on platforms such as Jupiter Exchange and Raydium. However, the network’s daily trading volume of $119 million is significantly lower than Polygon’s $292 million and Arbitrum’s $1 billion.
Despite a sharp correction that saw it fall to $145 on June 11, SOL derivatives and the Solana network have remained stable, indicating that traders and users are not ready to give up. The possibility of SOL regaining its $170 price seems feasible, especially if the Solana Foundation’s efforts to mitigate the impact of MEV (Maximum Extractable Value) improve the overall user experience.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.