Solana (SOL) has been in a steady downtrend for the past 3 months, but some traders believe that it may have bottomed out at $26.80 on Oct 21. There has been a lot of speculation lately about the causes of the poor performance, with some analysts pointing to competition from Aptos Network.
The Aptos blockchain launched on October 17 and claims to handle three times more transactions per second than Solana. However, after four years of development and millions of dollars of funding, the debut of the layer 1 smart contract solution was somewhat disappointing.
It is essential to note that Solana currently has a market capitalization of $11.5 billion at the $32 nominal price level, making it the seventh largest cryptocurrency if stablecoins are excluded. Despite its size, SOL’s year-to-date performance reflects a lackluster 82% drop, while the broader global market capitalization is down 56%.
Unfortunate events have negatively impacted the price of SOL
The downward trend accelerated on Oct. 11 after a major decentralized finance app on the Solana network suffered a $116 million hack.
The Mango Markets oracle was attacked due to the low liquidity of the platform’s native token, Mango (MNGO), which is used as collateral. To put things in perspective, the hack represented 9% of the total value locked (TVL) in smart contracts that Solana owns.
Another piece of negative news emerged on Nov. 2, when German cloud provider and data center operator Hetzner began blocking cryptocurrency-related activity. The company’s terms of service prohibit customers from running nodes, mining and farming, tracing and storing blockchain data. Still, Solana nodes have other cloud storage providers to choose from, and Lido Finance confirmed that the risk to its validators had been mitigated.
A potentially promising partnership was announced on November 2 after Instagram will integrate support to Solana-based NFTs, allowing users to create, sell and display their favorite digital art and collectibles. SOL reacted immediately with a 5.7% rise in 15 minutes, but retraced the entire move over the next hour.
To get a more detailed view of what is happening with the price of SOL, traders can also analyze the Solana futures markets to understand if the bearish news flow has affected professional traders’ sentiment.
Derivatives metrics show an unusual degree of apathy
Whenever there is significant growth in the number of derivative contracts at stake, it usually means more traders are involved. In the futures markets, the longs and shorts are balanced at all times, but having a greater number of active contracts – open interest – allows the participation of institutional investors who require a minimum market size.
Over the past 30 days, total open interest in Solana has been fairly stable at $440 million. For comparison, Polygon’s (MATIC) aggregate futures position soared to $415 million from $153 million on Oct. 3.
The BNB Chain (BNB) token showed a similar trend, reaching $485 million, up from $296 million on Oct. 3.
That said, open interest doesn’t necessarily mean professional investors are bullish or bearish. The annualized futures premium measures the difference between long-term futures contracts and current cash market levels.
The futures premium indicator (base rate) should range between 4-8% to compensate traders for “locking up” money until contract expiration. Thus, levels below 2% are bearish, while figures above 10% indicate excessive optimism.
Data from Laevitas shows that Solana futures have traded in backwardation for the past 30 days, meaning the futures contract price is lower than regular spot exchanges.
Ether (ETH) futures are trading at 0.5% annualized, while Bitcoin (BTC) is trading at 2%. The data is somewhat worrying for Solana as it points to a lack of interest from leverage buyers.
Rumors about Alameda Research could create more pressure
It is difficult to determine the reason for so much apathy towards Solana and even the total dominance of short-term leverage demand. Even more curious is the influence of Alameda Research on Solana’s projects. Alameda is the digital asset trading company headed by Sam Bankman-Fried.
Recently, trader and Twitter influencer Hsaka raised concerns about whether the firm has been suppressing SOL’s price even after bullish catalysts emerged.
Entire market catching a bid meanwhile Sol aimlessly meandering after two hyper bullish catalysts in such an environment.
Alameda washed up. https://t.co/FuGQvMfRcF
— Hsaka (@HsakaTrades) November 4, 2022
It is probably very unlikely that market participants will actually discover the impact of Alameda Research on the SOL price. Still, Hsaka’s theory could explain the unusually steady demand for leveraged shorts and the negative base rate. The arbitrage and market making firm could have used derivative instruments to reduce its exposure without selling SOL on the open market.
There is no indication that short sellers using SOL futures instruments are about to be liquidated or wiped out, so their advantage remains until the broader cryptocurrency market shows signs of strengthening.
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