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Wednesday, June 12, 2024
HomeCryptoCan SOL reclaim $170? Two indicators call for 'buy'

Can SOL reclaim $170? Two indicators call for ‘buy’

Solana’s native token, SOL, hit a four-week low on June 11 testing the $145 support level. Within four days, SOL has plummeted 15.8%, underperforming the overall cryptocurrency market, which has lost 10% of total capitalization over the same period. However, macroeconomic uncertainty may have created a buying opportunity for SOL, according to two key indicators.

Negative impact of macroeconomic events on SOL prices

Investors are concerned that the stock market could correct following mixed economic signals, causing the US Federal Reserve (Fed) to delay interest rate cuts. The CME FedWatch tool indicates that traders now see a 48% chance that interest rates will stay the same through September, up significantly from 39% a month ago. After hitting a record high on June 7, the S&P 500 index has stalled, with investors awaiting Fed Chairman Jerome Powell’s statement on June 13.

Source: CME FedWatch Tool

Stuart Kaiser, head of US equity trading strategy at Citigroup, suggested that a rise in the Consumer Price Index (CPI) above 0.4% month-on-month could trigger a widespread market sell-off. market, which could reduce the S&P 500 index by 1.5% to 2.5%. Kaiser also warned that the S&P 500 could experience its biggest one-day move since March 2023. US inflation data, scheduled for release on June 12, is expected ahead of the decision about Fed interest rates.

Optimistic outlook for SOL

SOL investors are hopeful about the potential listing of a US ETF, although the regulator does not yet support cryptocurrencies beyond Bitcoin and Ether. Brian Kelly, founder and CEO of BKCM Digital Asset Fund, sees SOL as a strong candidate for an ETF, especially following discussions by Bitwise chief investment officer Matt Hougan about the practical uses of Solana can attract investment from organizations.

SOL’s recent poor performance can also be attributed to issues within its network, especially with regards to maximum mineable value (MEV). Validators on the Solana network have been found to exploit traders through sandwich attacks – manipulating trading prices to extract profits at the expense of retail investors. In response, the Solana Foundation removed these validators from its delegation program, reducing incentives for such harmful actions.

Solana’s on-chain metrics and derivatives show upside potential

Notably, demand for leverage through SOL futures contracts is not affected by deteriorating market conditions. Perpetual contracts, also known as reverse swaps, have built-in rates that, when positive, indicate the need for increased leverage in long (long) positions. Conversely, a negative funding ratio indicates the need for more leverage in short positions.

Funding rate 8 hours of SOL futures contract Source: Coinglass

Data shows that SOL’s funding rate has held steady at 0.01% every eight hours since June 8, or about 0.2% per week. This stability in demand between bullish and bearish positions following the 15% SOL drop is an indicator of market resilience. If bulls relied on excessive leverage, one would see a significant increase in funding rates, which is not currently the case in the market.

On-chain data from the Solana network shows an increase in the number of users and transaction volume. While some analysts believe that Solana’s low fees may encourage data manipulation, this issue is not unique to Solana and affects other platforms such as Ethereum and Ethereum layer 2 solutions. Competitors like BNB Chain.

Solana currently ranks as the fourth largest blockchain in terms of 24-hour active addresses interacting with decentralized applications (DApps), with prominent activity on platforms such as Jupiter and Raydium. However, the network’s daily trading volume is $119 million, significantly lower than Polygon’s $292 million and Arbitrum’s $1 billion.

Top blockchains ranked by 24-hour active addresses | Source: DappRadar

Despite a sharp drop to $145 on June 11, derivatives indices and the Solana network remained stable, suggesting that traders and users are not ready to give up. The possibility of SOL reclaiming the $170 price seems feasible, especially if the Solana Foundation’s efforts to minimize the impact of maximum mineable value (MEV) enhance the overall user experience.

Do you think Solana removing harmful mining validators can increase confidence among investors and users?

*Funding rate is a periodic fee in perpetual futures contracts to keep the contract price close to the spot price. When the funding rate is positive, traders in long positions have to pay fees to traders in short positions, and vice versa when the funding rate is negative. It helps balance contract prices with spot prices and provides signals about market sentiment. This ratio reflects traders’ optimism or pessimism about the market.

You can see coin prices here.

Jia Bao Ngoc

According to Cointelegraph

Mark Tyson
Mark Tyson
Freelance News Writer. Always interested in the way in which technology can change people's lives, and that is why I also advise individuals and companies when it comes to adopting all the advances in Apple devices and services.
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