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The cryptocurrency market is down in the early Monday trading session, with the majority of digital assets losing value.
Solana, the sixth largest cryptocurrency, is down 6% in the last 24 hours to $184 at press time against the broader crypto market’s losses of 1.22%. Solana is down nearly 10% weekly.
Solana’s drop in the past week has coincided with a decrease in on-chain activity within the Solana ecosystem. According to Ali, a crypto analyst, the number of wallets that hold more than 100 Solana (SOL) has decreased by 2.24% in the last two weeks, from 154,653 to 151,184.
An outflow of $772 million in USDT and USDC stablecoins from the Solana blockchain was witnessed in a week, according to on-chain analytics platform LookOnChain. During the same period, Ethereum's USDT and USDC supply increased by $1.1 billion.
Tomiwabold OlajideSolana's price dip also coincides with a period of increasing weakness against Ethereum. The widely monitored SOL/ETH pair has declined more than 28% since its peak on Feb. 3 and 5.2% in the last 24 hours.
Solana drop presents silver lining
Solana is down for the third day in a row after peaking at $205 on Feb. 14. The loss took Solana below the crucial SMA 200 mark at $183, but it has since returned above it at press time. According to CoinGlass data, Solana's open interest (OI) is rising, but OI-weighted funding rates remain negative, which explains why SOL's price is declining.
Negative funding indicates that shorts are paying longs to keep their positions open. This bearishness has resulted in oversold conditions for SOL.
According to crypto analyst Ali, funding rates suggest that a few crypto assets, notably SOL, are among the most oversold currently. Oversold conditions based on funding rates imply that a significant number of leveraged traders are shorting the asset.
In this scenario, the cost of maintaining these short positions increases, potentially triggering a reversal as traders begin to cover their shorts. For SOL, this could imply that the recent 6% loss was an overreaction, with a potential comeback or short squeeze on the horizon if the market adjusts.
Dan Burgin
Vladislav Sopov