Solana's native token, SOL (SOL), hit a four-week low on June 11 as it tested the $145 support level. Within four days, SOL underwent a sharp 15.8% decline, underperforming the broader cryptocurrency market, which saw a 10% drop in total capitalization during the same period. Despite this, the macroeconomic instability may have created a buying opportunity for SOL, according to two key indicators.
Macroeconomic events negative impact on SOL’s price
Investors are concerned that the stock market may correct itself following mixed economic signals, prompting the United States Federal Reserve (Fed) to delay interest rate cuts. The CME FedWatch tool indicates that traders now see a 48% chance of rates staying the same until September, a significant increase from 39% a month ago. After reaching a record high on June 7, the S&P 500 index has plateaued, with investors awaiting remarks from Fed Chair Jerome Powell on June 12.
Stuart Kaiser, Citigroup’s head of U.S. equity trading strategy, suggests that a Consumer Price Index (CPI) increase above 0.4% compared to the previous month could trigger a broad market selloff, potentially dropping the S&P 500 by 1.5% to 2.5%, as reported by Yahoo Finance. Kaiser also cautioned that the S&P 500 might experience its largest single-day movement since March 2023. The U.S. inflation data, scheduled for release on June 12, is keenly anticipated ahead of the Fed's rate decision.
SOL investors are hopeful for a potential U.S. exchange-traded fund (ETF) listing, despite the regulatory body not having supported cryptocurrencies other than Bitcoin (BTC) and Ether (ETH). Brian Kelly, founder and CEO of BKCM Digital Asset Fund, considers SOL a strong candidate for an ETF, especially following discussions by Bitwise’s chief investment officer, Matt Hougan, on how real-world applications of Solana could attract institutional investments.
The recent underperformance of SOL can also be attributed to issues within its network, particularly regarding maximum extractable value (MEV). Validators on the Solana network were discovered exploiting traders through sandwich attacks—manipulating transaction prices to extract profits at the detriment of retail investors. In response, the Solana Foundation excluded these validators from its delegation program, decreasing incentives for such harmful actions.
Despite experiencing a steep 15% drop in just four days, several indicators suggest that investor confidence in SOL remains intact. This sentiment might soon lead to a positive turnaround once the macroeconomic conditions stabilize.
Solana on-chain and derivatives metrics indicate potential upside
Notably, the demand for leverage through SOL futures has remained unaffected by the deteriorating market conditions. Perpetual contracts, also known as inverse swaps, feature an embedded rate that, when positive, indicates increased demand for leverage among long (buy) positions. Conversely, a negative funding rate suggests a need for more leverage among short (sell) positions.
Data shows that SOL's funding rate has remained steady at 0.01% per eight hours since June 8, translating to about 0.2% per week. This stability in demand between bullish and bearish positions following a 15% price drop in SOL is an indicator of market resilience. If bulls were relying on excessive leverage, one would see a significant rise in the funding rate, which is not currently the case.
On-chain data from the Solana network shows an increase in user numbers 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 like Ethereum's layer-2 solutions and competitors such as BNB Chain.
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Solana is currently ranked as the fourth largest blockchain in terms of 24-hour active addresses interacting with decentralized applications (DApps), with notable activity on platforms like Jupiter Exchange and Raydium. However, the network’s daily transaction volume of $119 million is significantly lower than Polygon’s $292 million and Arbitrum’s $1 billion.
Despite a sharp correction down to $145 on June 11, SOL derivatives and the Solana network have remained stable, indicating that traders and users are not ready to give up. The potential for SOL to reclaim a price of $170 seems feasible, particularly if the Solana Foundation's efforts to mitigate the impact of maximum extractable value (MEV) enhance the overall user experience.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.