Solana (SOL) has long been linked to Sam Bankman Fried, the founder of now-bankrupt cryptocurrency exchange FTX and hedge fund Alameda Research. He was an early investor in the project and invested in numerous Solana ecosystem projects during the 2020-2021 bull market mania.
So when FTX collapsed in late 2022, Solana and other “Sam coins” plummeted, falling to a low of $9.89, down 96.3% from their peak of $259.96.
Since early 2023, Solana’s price has rebounded as the ecosystem has grown, rising 175% to peak at $27.37.
However, recently, SOL faced huge selling pressure after the Delaware Bankruptcy Court approved the sale of FTX’s digital assets, which included 55.75 million SOL worth $1.062 million. However, FTX position unlocking schedules and derivatives market positioning suggest that an opposite upward trend may be in store.
Judge John Dorsey made the ruling during a Sept. 13 hearing. SOL price hit a weekly low of $17.96 following the court ruling.
However, since yesterday, the SOL price has increased by approximately 4% on September 14, with $800,000 worth of longs being liquidated, according to CoinGlass data.
Cryptocurrency trader MartyParty believes the selling pressure is overblown as the majority of FTX’s SOL stake is due to vest between 2025 and 2027.
This is the Alamedas Solana wallet with 26,740,743 staked rights $SOL From 2025 to 2028.
This wallet key will be sold in FTX liquidation.no $SOL It won’t be unlocked until 2025-2028.
As I’ve posted for weeks – FTX/Alameda only holds 7 million $SOL and… pic.twitter.com/WeIkCKf2Ek
— MartyParty (@martypartymusic) September 13, 2023
Additionally, for derivatives, traders flooded the market with short orders following the announcement, which could cause prices to rise in the opposite direction.
Most FTX tokens are locked
The Solana Foundation has freed An update on FTX’s Solana holdings after its collapse shows that some of the SOL tokens held by the defunct exchange were locked until 2027.
According to the schedule, there are more than 33 million SOL tokens yet to be unlocked. It represents more than 60% of the shares FTX will sell on the market.
Under FTX’s terms for crypto-to-fiat conversions, selling pressure is limited by a cap of $50 million in the first week and $100 million in subsequent weeks.
There is an option to increase the limit, subject to prior written approval by the creditors committee and the ad hoc committee, or to $200 million per week subject to court approval.
Assuming creditors can sell all SOL tokens, it would take them approximately 10 to 12 weeks to sell their entire holdings, which would spread the selling pressure over several weeks.
At the same time, the price of SOL can move on both sides, especially when the futures market presents opportunities for market makers or high-volume traders.
According to data from CoinGecko, the 30-day average trading volume on spot exchanges is $338 million. With a weekly size of approximately $2.5 billion, selling pressure on FTX is only 4%.
MartyParty said that based on daily spot volume compared with potential selling pressure on SOL,
Even smaller drops you won’t even notice. If you think this incident will weaken Solana, you are wrong and should not listen to the scammers on social media and YouTube who know nothing about cryptocurrencies.
Related: Court approves sale of FTX digital assets worth up to $3.4B
Is a SOL short squeeze coming?
Coinglass data shows that the funding rate for perpetual contracts on cryptocurrency exchanges plummeted to minus 21.1% on September 13, indicating crowded short orders.
Perpetual swaps are futures contracts with no expiration date, and their funding rate mechanism helps determine the relative demand for long and short orders. A positive funding rate indicates demand for long orders and vice versa.
This week, SOL’s open interest increased from $266 million to $327 million, and funding rate data showed traders maintained a bearish bias, opening the possibility of a short squeeze.
A short squeeze occurs when short traders are forced to buy back an asset at a higher price to close their position as the asset’s price rises.
Notably, negative funding rates since August have resulted in flat price returns so far. Often, however, prices can surge, scaring away shorts and offsetting funding rates.
According to MartyParty, “retail shorts are piling up to the $30 liquidation level” as he expects “all of it will be washed away in a market maker squeeze.”
Coinglass’ liquidation heat map shows that there are large leveraged positions on both sides of SOL’s current price, with the highest concentrations at $20.50 and $17.06.
Technically, SOL faces resistance at the downtrend line from July. It is also below the 50-day and 200-day moving averages at $21.08 and $22.09, which may act as resistance.
This article does not contain investment advice or recommendations. Every investment and trading activity involves risks, and readers should do their own research when making decisions.
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