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Solana (SOL) has stunned the market with a sharp 21 percent increase in the past week


After rallying to a new multi-week high to above $28K, Bitcoin's price has come to a halt, and as of writing, the largest cryptocurrency by market cap is trading at $27,620. Meanwhile, Bitcoin's dominance over the alternative cryptos is strong at 49.4%. 

According to the latest edition of the weekly market report from cryptocurrency exchange Bitfinex, Bitcoin reserves on centralized exchanges (CEXs) have plummeted to levels not seen since early January 2018, when the market topped and the bull market ended.

Currently, only 2.03 million BTC sit on exchanges, according to the Bitfinex Alpha report.

In its report, the crypto trading platform noticed a correlation between this drop in exchange reserves and increasing crypto prices, suggesting that the market may be in for a bull run. 

BTC reserves on exchanges have actually been declining since they hit a peak in March 2020, and that's when the asset's price began to rise. This shows that the reserves hitting their highs matches the beginning of a bull market, indicating a possible inverse relationship between BTC's price and exchange reserves.

While exchange reserves declined while crypto prices increased, the drop in BTC price back in Nov. 2021 and the continued drop in exchange reserves challenged this connection. This is because investors also tend to hold less BTC on exchanges during bear markets.

Despite that, many market indicators show that long-term holders, as well as a large part of the short-term investors, are currently in a HODL phase. While the 12-18-month supply holders are in a position to profit on some of their holdings, long-term and short-term holder supply has remained inactive. This is a sign that investors across multiple cohorts are confident that BTC will not see a massive slump from its current price, Bitfinex said.

Crypto Market Recovery

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After the brutal 2022, which saw the tumultuous collapse of several big players, crypto prices, volumes, and venture capital investment remain well below their 2021 peaks. This also coincided with central banks beginning to hike rates in early 2022, making investors risk-averse and seeking better returns elsewhere.

In September 2023, total monthly volumes across spot and derivative markets fell to $1.4 trillion, a decline of more than 60% from September 2022, as per researcher CCData. Spot markets, in particular, are down more than 70% at $272 billion, while derivative volumes have fallen by 60% to $1.1 trillion during this time period.

Much like volatility and volume, venture capital (VC) investments have also slowed considerably this year. In Q1 of 2022, US VC crypto investments totaled $6.12 billion but slumped to just $870 million in the same quarter this year, according to data firm PitchBook.

However, the market has come a long way since the lows of Nov. 2022, when the crypto exchange FTX collapsed. Bitcoin has regained more than 72% of its value, and the total crypto market cap is above $1 trillion, which hit a two-year low of $796 billion at the time.

October has already started on a green note. Talking about the immediate price action, Bitfinex analysts stated in its report that a green October succeeded on three occasions where BTC ended September on a positive note. “Crucially, we've closed September in the green, a rare occurrence. Historically, a positive September ushers in a bullish October, and the volatility as well as the futures market metrics all point towards increased volatility and some upside, at least on the higher time frames,” said the analysts.

A Look at SOL's Market Performance

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At the time of writing, crypto is in the mix, with Ether exchanging hands at $1,648, and the total crypto market cap stands at $1.12 trillion. Meanwhile, the $198.3 bln ETH's competitor SOL, which has a market capitalization of $9.7 bln, is trading at $23.60.

In the past 24 hours, however, the SOL price has dropped 2.2% but is still up 21.4% in the past week and over 140% in 2023 so far. SOL has lost 30% of its value over the past year and is currently down 91% from its all-time high (ATH) of $260 hit on Nov. 6, 2021. 

SOL's price against ETH, meanwhile, is at 0.0143, up from 0.0089 in May this year but down from 0.156 on Jan. 8, 2023. SOL-ETH peaked at 0.469 in Sept. 2021, only to decline to 0.00832 in Dec. 2022.

This latest price action helped Solana become the 8th largest cryptocurrency by market cap, taking over Dogecoin (DOGE) and Cardano (ADA). SOL has actually reported its strongest week since mid-July and recorded a 38% increase from its September low, though these numbers are nowhere near their peak during the bull market.

SOL was actually one of the coins that was majorly hit by FTX implosion due to the crypto exchange founder Sam Bankman-Fried's (SBF) heavy involvement and investment in the Solana ecosystem. In Nov. 2022, SOL was trading around $37 when the news of FTX's bankruptcy and SBF's misuse of customer funds became public, and the crypto asset lost more than 67.5% of its value in just over a week. At the time, SOL's price went as low as $12. By the end of the year, the Solana ecosystem plunged 98% after the FTX crash.

Now, the latest price action comes as SOL's 24-hour trading volume reached close to the $1 billion mark for the first time since July. This significant trading activity and price action helped generate social engagement for the token. Data from LunarCrush indicates a nearly 47% surge in SOL's social engagement over the last seven days. 

While the price of SOL has taken a dip, it's possible that the altcoin could record further gains. But for now, the crypto has key resistance present at $25 and then at $28. If bulls persist, the price can easily go past $30, which is the high from July, and then even $40. However, if bears take hold, the price has support available at $22 and then at $20.

Click here to learn all about investing in Solana (SOL).

The Faster & Cheaper Solana Blockchain 

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SOL is the native cryptocurrency of the Solana blockchain, a layer 1 platform with fast transaction times and inexpensive fees designed to facilitate decentralized app (dApp) development.

Founded by software engineer Anatoly Yakovenko in 2017 after three years of development, Solana counts the likes of Multicoin Capital, BlockTower Capital, Distributed Global, Foundation Capital, Slow Ventures, NEO Global Capital, Blockchange Ventures, Passport Capital and Rockaway Ventures among its investors.

Unlike others, Solana uses a hybrid protocol system and unique timestamp technology. Proof-of-history (PoH) is a mechanism that creates a verifiable and secure timestamp for each transaction, allowing nodes to process transactions without communicating. This significantly speeds up the transaction processing time.

In tandem with PoH, Solana also utilizes the Proof-of-Stake (PoS) consensus mechanism, which finalizes transactions and secures the network by allowing validators with a stake in the system to propose and vote on the validity of new blocks.

The blockchain can handle up to 65,000 transactions per second (TPS) thanks to using advanced technologies such as GPU processing, parallel processing, and more. These high-performance computing technologies allow Solana to process transactions and smart contracts faster and more efficiently.

The token SOL, meanwhile, is used to pay for fees to send transactions or run smart contracts as well as staking, which involves locking SOL up to secure the network and earn money while doing so.

Solana is an inflationary cryptocurrency with no hard cap on the total number of tokens. Currently, 413.4 million SOL tokens are circulating in the market. SOL was launched in March 2020, and that year, its price bounced between $0.50 and $1.50. The altcoin was one of the top-performing assets amid the 2021 bull run.

Once called ‘Ethereum Killer,' SOL has been struggling as of late. Amidst that, Yakovenko called the Ethereum blockchain a “digital carnival” with a bourgeois upheaval.

“In the grand theatre of economic transformation, Ethereum presents itself not as a harbinger of genuine revolution but merely as a novel spectacle of bourgeois upheaval. As the petite bourgeoisie revels in this digital carnival, the visage of oppression subtly transforms, yet its essence remains inviolate, forever pressing upon the countenance of the toiling masses with a boot, albeit of a different style, yet no less ruthless and unrelenting,” said Yakovenko on X (previously Twitter).

According to him, digital creation needs to be accessible and cheap, and only that will lead to a “truly decentralized and stateless digital realm.” And in that process, it will cast away “the shadows of bourgeois digital tyranny that Ethereum so subtly embodies.”

Solana Blockchain Activity 

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Now, if we look at the Solana blockchain's activity, the total value locked (TVL) in its ecosystem has risen by more than 60% since the beginning of the year. The network notched its highest TVL of the year at $338.82 million, according to DefiLlama. However, the TVL was far from Nov. 2021 high of $10+ billion.

When it comes to the blockchain's revenue, which is the share of transaction fees accrued to SOL holders, it has declined 14% over the past 30 days to $591.90K, according to Token Terminal. Meanwhile, annualized revenue has dropped 13.2% to $7.20 million. As for total transaction fees paid by users, it has dropped by 13.89% over the past 30 days and 13.18% over the past year to $18 mln and $14.40 mln, respectively. 

Moreover, active daily users over the past month have also fallen by 10.1% to 84.72K. Over the past 30 days, the network's core developers dropped by 4.4% to about 69, and code commits to GitHub by 16.5% to 492.

Meanwhile, institutional investors seem particularly interested in SOL as Solana-focused investment products recorded 27th week of inflows and just four weeks of outflows this year, according to CoinShares' latest Digital Asset Fund Flows report. 

For the first time in six weeks, digital asset investment products witnessed inflows of $21 million last week. This was due to positive price momentum, the recent quagmire surrounding government funding, and concerns regarding US government debt prices. However, trading volumes for crypto investment products remain “seasonally low,” much like the broader cryptocurrency market, averaging $3 billion daily, far from last year's $11 billion.

While “very little activity was seen in the altcoin space,” CoinShares notes that Solana kept shining with $5 million inflows, establishing Solana as the “most loved altcoin” of the year.

When it comes to majors, Bitcoin investment products saw inflows of $20.4 million following the outflow of over $100 million last month. Ethereum, however, saw outflows of $1.5 million over the past week, along with products focusing on multiple cryptocurrencies, which saw 1.4 million in outflows. 

Ethereum actually saw outflows for the seventh consecutive week, totaling $1.5 million, making it the “least loved altcoin.” So far this year, Ethereum has seen $114 million of outflows compared to Solana's $31 million of inflows.

Besides this, last month, global payments giant Visa announced the inclusion of Solana in its stablecoin trials thanks to its high-performance capabilities. With that, Visa now supports Solana-based USDC transactions. The company has already conducted live pilot programs, transferring millions of USDC stablecoins over both the Solana and Ethereum blockchain networks. 

However, amidst this, a huge sell-off casts a worrying shadow on the crypto asset. Last month, court documents revealed that FTX owns $1.16 billion worth of SOL tokens. If the now-defunct crypto exchange liquidates its holdings, it can tank the prices for SOL. However, the situation may not be so severe as only a fraction of these SOL holdings are liquid.

According to market analyst The Tie, as much as 22 million SOL tokens (roughly valued at $400 million) are still unlocked and can be sold. This figure represents close to 4% of SOL's total supply. Meanwhile, 40 million to 44 million tokens are currently staked, and another $17 million worth of SOL tokens are expected to be unlocked every month for the next four years.

Click here to learn all about buying Solana (SOL). 

Concluding Thoughts

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SOL price is currently enjoying increased price and market activity. However, it has been severely hit by the FTX debacle, and future liquidations by the crypto exchange will continue to be a danger for the crypto asset. Not to mention, the broad crypto market is struggling with a lack of volume and interest. Still, Solana has managed to gain some traction among institutional investors. Now, it remains to be seen if it will manage to gain healthy price performance and usage when sentiments and momentum shift.

Sources


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