The Market Is Hot, But Solana Isn’t – Data Explains Why SOL Price Is Lagging

Solana (SOL) has been trending steadily lower for the past three months, but some traders believe it may have hit a low of $26.80 on October 21st. Lately, there has been a lot of speculation about the causes of the underperformance and some analysts point to competition from Aptos Network.

Solana price at FTX, USD. Source: Trading View

The Aptos blockchain was launched on October 17 and claims to handle three times more transactions per second than Solana. Yet after four years of development and millions of dollars in funding, the Layer 1 smart contract solution’s debut was rather unimpressive.

It is essential to point out that Solana currently holds a market capitalization of $11.5 billion at the nominal price level of $32, which ranks it the seventh largest cryptocurrency when excluding stablecoins. Despite its size, SOL’s year-to-date performance reflects a lackluster decline of 82%, while the broader global market capitalization is down 56%.

Unfortunate events had a negative impact on the price of SOL

The downward trend accelerated on October 11 after a leading decentralized finance app on the Solana network suffered a $116 million hack.

The Mango Markets Oracle came under attack due to the low liquidity of the platform’s native Mango (MNGO) token which is used as collateral. To put it into perspective, hacking accounted for 9% of Solana’s total value locked (TVL) in smart contracts.

More negative news emerged on November 2 when German data center operator and cloud provider Hetzner began blocking crypto-related activities. 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 their validators has been attenuated.

A potentially promising partnership was announced on November 2 after Instagram integrated Solana-based non-fungible token (NFT) support, allowing users to create, sell, and showcase their favorite digital arts and collectibles. SOL immediately reacted with a 5.7% pump in 15 minutes but retraced all the movement over the next hour.

To get a more detailed view of what is happening with the SOL price, traders can also analyze the Solana futures markets to understand if the bearish news flow has affected the sentiment of professional traders.

Derived metrics show an unusual degree of apathy

Whenever there is relevant growth in the number of derivative contracts currently in play, it usually means more traders are involved. In the futures markets, long and short positions are balanced at all times, but having a greater number of active contracts – open interests – allows the participation of institutional investors who require a minimum market size.

Solana Futures Open Interest, USD. Source: Coinglass

Over the past 30 days, total open interest on Solana has been reasonably stable at $440 million. By comparison, Polygon’s (MATIC) aggregate futures position climbed to $415 million from $153 million on Oct. 3.

BNB Chain’s token, BNB (BNB), showed a similar trend reaching $485 million, down from $296 million on October 3.

That said, open interest does not necessarily mean that professional investors are bullish or bearish. The annualized futures premium measures the difference between longer term futures contracts and current spot market levels.

The futures premium (base rate) indicator should be between 4% and 8% to compensate traders who “lock in” money until the contract expires. Thus, levels below 2% are bearish, while numbers above 10% indicate excessive optimism.

Solana’s 3-month futures annualized premium. Source: Laevitas.ch

Data from Laevitas shows that Solana futures have been trading backward for 30 days, which means the price of the futures contract is below regular spot trades.

Ether (ETH) futures are trading at an annualized 0.5%, while Bitcoin (BTC) futures are trading at 2%. The data is somewhat concerning for Solana as it signals a lack of interest from leveraged buyers.

Rumors about Alameda Research could create more pressure

It’s hard to pinpoint the reason for so much apathy about Solana and even the complete dominance of leveraged short-term demand. Even more curious is the influence of Alameda Research on the Solana projects. Alameda is the digital asset trading company run by Sam Bankman-Fried.

Recently, Crypto Twitter trader and influencer Hsaka questioned whether the firm suppressed the price of SOLs even after bullish catalysts appeared.

It is probably highly unlikely that market participants will truly discover the impact of Alameda Research on the price of SOL. Still, the theory raised by Hsaka could explain the rather unusual steady demand for leveraged shorts and the negative base rate. The arbitrage and market-making firm could have used derivatives to reduce its exposure without selling SOL on the open market.

There is no indication that short sellers using SOL futures are nearing liquidation or exhaustion, so their edge remains until the broader cryptocurrency market shows signs of strengthening. .