Solana’s native token, SOL (SOL), experienced a remarkable 58.6% increase in just five days, reaching a high of $64 on November 11th. However, the subsequent two-day drop of 11.3% to $54 has investors wondering whether this is a signal of fading bullish momentum or simply a temporary price adjustment.
To put SOL’s performance into context, one can compare it to other leading altcoins. Since its peak on November 11, Avalanche’s AVAX (AVAX) is up 17%, Ether (ETH) is up 1%, and BNB (BNB) is down 2%. This comparison highlights that SOL has underperformed the broader altcoin market. Therefore, the 5.5% daily decline on November 13 is unlikely to be related to macroeconomic or sector factors such as the possible approval of a spot BTC exchange-traded fund.
Solana remains a top contender in terms of performance and on-chain activity
Despite the recent decline in SOL price, a seven-day gain of 35% suggests that investors should not be quick to adopt a bearish outlook as this could simply be a natural correction following Solana’s significant outperformance. However, it is important not to ignore the fundamentals of the Solana network, which include on-chain metrics and SOL’s derivatives markets. Excessive leverage by traders could potentially lead to forced liquidations, particularly in perpetual contracts or inverse swaps where funding rates play a crucial role.
Perpetual contracts, also called inverse swaps, include an embedded interest rate that is typically calculated every eight hours. A positive funding rate suggests that long positions (buyers) are seeking more leverage, while the opposite situation occurs when short positions (sellers) need additional leverage, resulting in a negative funding rate.
7-day funding rates on top exchanges. Source: CoinGlass
The seven-day funding rate for SOL is in line with that of Bitcoin (BTC) and ETH, indicating slightly higher demand for leveraged long positions. The weekly cost of 0.4% is standard considering the cryptocurrency’s market capitalization has risen 10.5% in the past two weeks to reach $1.4 trillion, its highest level since May 2022.
There are inherent risks in analyzing on-chain data from semi-centralized networks with very low transaction fees, as it is relatively easy to inflate these metrics, especially in the context of decentralized finance. A case in point is the revelation in August 2022 of a former developer of Sabre, a previously respected decentralized exchange on Solana, who revealed that a significant portion of the application’s Total Value Locked (TVL) was manipulated through double counting.
Since then, data providers have improved their services to prevent such blatant metric inflation. Currently, Solana’s TVL stands at $535 million, which, while significant, is relatively modest compared to its close competitors.
Blockchain’s TVL rankings in USD. Source: DefiLlama
It is noteworthy that despite Solana’s impressive market cap of $22.7 billion, Solana’s TVL lags behind Avalanche’s $614 million. Likewise, Polygon’s TVL is $840 million while MATIC (MATIC) market cap is $8.2 billion, highlighting the disparity.
Additionally, the accumulation of daily fees for Solana totaling $660,000 does not appear to justify significant future demand for SOL. Even if this number increased significantly, it would still lag the increase in token supply, which has increased 3.7% over the past 90 days, or $65 million per week.
In addition to the regular issue of SOL, there is the vesting schedule related to the failed FTX exchange and Alameda Research. The bankruptcy estate was allowed to sell up to $100 million in digital assets per week, including 55.75 million SOL in September 2023.
NFT data shows Solana is a top contender
Solana’s emergence as a strong player in the non-fungible token (NFT) market has been one of its notable selling points, given the high costs associated with issuing and managing collections on Ethereum, the leading blockchain. However, this advantage was not enough to attract the most valuable items and whales to Solana’s NFT markets.
Related: China makes the theft of digital collections like NFTs illegal and punishable by law
Blockchains by NFT sales volume in USD, 7 days. Source: CryptoSlam
Although the average seven-day transaction fee on the Ethereum network has increased to currently $7.6, the total weekly NFT volume continues to exceed Solana’s by more than seven times. This data highlights that investors and creators consider factors beyond transaction costs. Nevertheless, Solana maintains a significant market position alongside leaders Bitcoin and Ethereum.
Although SOL price corrected by 5.5% on November 13, this does not necessarily reflect a decline in network activity or reduced demand for leveraged long positions using futures contracts. However, it suggests that investors have taken note of SOL’s seemingly excessive market cap compared to its peers. The extent of this correction remains uncertain.
This article is for general information purposes and is not intended to constitute, and should not be construed as, legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.
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