The value of Solana has significantly decreased by more than 30% since the end of November.
The value of Solana has significantly decreased by more than 30% since the end of November.
Solana's native token, SOL, has encountered significant drops recently, plummeting over 30% from its all-time high of $175.00 on December 20, as per Coinbase data from TradingView.
SOL approached the $175.00 mark on December 20, according to Coinbase data from TradingView. At this point, the digital currency was down around 32% from its all-time high of over $257.00 on November 22, as revealed by additional Coinbase figures from TradingView.
Despite a slight recovery, SOL has failed to regain the majority of its losses since late November, trading around $185 at the time of writing.
Various market analysts provided potential reasons for SOL's weakness, such as market consolidation and growing concerns about decreased activity on the native platform.
Wendy O, a TikTok influencer, pointed out that Solana had been in a downtrend since breaking its 2021 all-time high of $260, possibly due to Bitcoin's inability to sustain $100,000, traders and investors taking profits, or the markets cooling down in general.
Uncertain Policy Outlook
The analyst noted that although Trump's reelection bolstered cryptocurrency markets, there are numerous uncertainties surrounding what will happen when he returns to the Oval Office.
Trump recently announced his intention to nominate Paul Atkins, who previously served as a commissioner for the U.S. Securities and Exchange Commission, for the agency's top post. Atkins, expected to adopt a more pro-business approach to regulation, is likely to have a different stance than current SEC Chair Gary Gensler, known for his aggressive approach towards the cryptocurrency/blockchain industry.
Falling Network Activity
One analyst highlighted the substantial decrease in activity that the Solana network has experienced over the last few weeks.
“Since the end of November, Solana has witnessed a significant decrease in both network activity (daily transactions have nearly halved since November 20) and TVL (total value locked) in its DeFi applications,” Alex Lin, cofounder and general partner at venture capital firm Reforge, wrote via email.
This decrease in network activity is likely due to the shifting focus on Solana itself and newer or alternative platforms, such as Hyperliquid, which has garnered significant visibility and inflows of over $1bn and reaching $3.2bn in TVL since launching its native token last month. Hyperliquid has faced concerns about centralization, but has managed to thrive despite these issues.
Solana is seen as more sensitive to market sentiment shifts than BTC or ETH, as its growth in 2021 can be attributed to more speculative activities associated with its ecosystem, such as memecoins and high-leverage trading.
A Healthy Consolidation
The analyst also suggested a separate, more neutral explanation for the recent declines in the SOL token.
“Solana's price might have been disproportionately affected by market conditions historically and is now experiencing a healthy correction,” Lin noted.
Tim Enneking, managing partner of Psalion, echoed this sentiment. When asked about the factors behind the recent drop in SOL prices, he stated “In this case, the answer is relatively straightforward: markets, and Solana in particular, have moved very far very fast and are now consolidating. This is, in fact, a healthy consolidation prior to the next move up.”
Enneking added that “That’s clearly part of the consolidation, as well as tax considerations (especially given that the wash sale rule doesn’t apply to crypto).”
Disclosure: I own some Bitcoin, Bitcoin Cash, Litecoin, Ether, EOS, and SOL.
The current price of SOL, Solana's digital token, is around $185, showing a failure to regain significant losses from late November. Investors and traders might be considering selling, as SOL has been in a downtrend since breaking its 2021 all-time high of $260, potentially due to Bitcoin's struggle to maintain $100,000 or the markets generally cooling down.
Analyzing the cryptocurrency market, it's notable that while Bitcoin and Ethereum might be less sensitive to market sentiment adjustments, Solana seems to be more affected due to its growth in 2021 being tied to more speculative activities inside its ecosystem, such as memecoins and high-leverage trading.