Solana: The road to recovery remains unclear

Solana: The road to recovery remains unclear

The price development of the Solana cryptocurrency (SOL) has become the subject of much debate in recent weeks. After dropping to $131.90 on February 25, the lowest in five months, it appears that SOL's price recovery will be slower than that of Bitcoin or other altcoins. What is behind this decline and what are the prospects for the future?

Solana's native token, SOL, may have briefly recovered to the $140 level after the drop, but overall it has seen a 17% decline since 22 February, while the broader altcoin market has only declined by 10%. These developments suggest that SOL has a more difficult period ahead. Many factors, such as reduced activity in the onchain and a decline in trading volumes on decentralized exchanges (DEX), are contributing to this negative trend. For example, volumes on DEX on the Solana network have dropped 30% in the last seven days, the lowest level since October 2024.

Some analysts believe that SOL's negative performance is due to the decline in popularity of memecoins. However, the reality is more complex. The decline in activity on Solana's decentralized applications (DApps) has been reflected in areas such as liquid betting, revenue strategies, gambling and NFT lending. For example, platforms like Jito and Fragmatic have seen dramatic declines in active users.

The scalability of the Solana network depends on the economic incentives for its validators. The cost of running a validator can be up to USD 72 000 per year, which reduces profitability. Currently, the return on native SOL stacking is approximately 9.5%, but after accounting for inflation, net profits become much lower. More than 16.1 million SOLs are expected to be unlocked between February and May 2024, representing 10% annual inflation and potentially generating negative staking returns.

According to data from the derivatives markets, demand for leveraged long positions in SOL futures has fallen to the lowest level in a year. Due to the unexpected entry into backwardation, with SOL futures offering low demand for long positions, total open interest in SOL futures declined by 8.5%.

It is likely that SOL will need more time to regain bullish momentum. Declining activity on the onchain, inflationary pressure, weak demand for leveraged positions and uncertainty over the approval of an ETF for Solana in the United States are factors that may affect future price action.

While the cryptocurrency market remains dynamic and volatile, the future of Solana appears to be clouded by many uncertainties at present. How the situation will unfold remains a question we will have to wait and see.

*This is not an investment recommendation.

Coingarage Team