Why is Solana (SOL) price down today?

Solana’s native token (SOL) surged 58.6% in just five days, reaching a high of $64 on November 11. However, an 11.3% retracement to $54 over the next two days prompted investors to question whether this indicated bullish sentiment was losing momentum or was simply a temporary price correction.

To understand how Solana performs, we compare it with other leading altcoins. Since peaking on November 11, Avalanche (AVAX) has gained 17%, Ethereum (ETH) has gained 1%, and BNB Token (BNB) has fallen 2%. This comparison highlights the fact that SOL has underperformed within the broader altcoin market. Therefore, the 5.5% daily drop on November 13 is unlikely to be related to macroeconomic or industry drivers, such as the potential approval of a spot BTC exchange-traded fund (ETF).

Solana remains a top contender in terms of performance and on-chain activity

Although SOL’s price has fallen recently, the 7-day gain of 35% suggests investors should not rush into a bearish outlook, as this may just be a natural correction following Solana’s outperformance. However, it is important not to lose sight of the fundamentals of the Solana network, which include on-chain metrics and SOL’s derivatives market. Excessive use of leverage by traders can lead to forced liquidations, especially in perpetual contracts or inverse swaps, where funding rates play a crucial role.

Perpetual contracts, also known as inverse swaps, have an embedded interest rate that is typically charged every eight hours. Positive funding rates indicate that longs (buyers) are seeking more leverage, while the opposite occurs when shorts (sellers) require additional leverage, resulting in negative funding rates.

SOL’s 7-day funding rate is in line with BTC and ETH, showing slightly higher demand from leveraged longs. Considering that the cryptocurrency market capitalization has increased by 10.5% in the past two weeks to reach $1.4 trillion, the highest level since May 2022, a weekly cost of 0.4% is standard.

There are inherent risks in analyzing on-chain data from semi-centralized networks with extremely low transaction fees, as it is relatively easy to inflate these metrics, especially those related to decentralized finance (DeFi).A case in point is the disclosure in August 2022 by a former developer of Sabre, the previously respected decentralized exchange (DEX) on Solana, who disclosed A large portion of the application’s total value locked (TVL) is manipulated through double counting.

Data providers have since improved their services to prevent this apparent metric inflation. Currently, Solana’s TVL is $535 million, which, while impressive, is relatively small compared to its strong competitors.

It is worth noting that despite Solana’s market capitalization of US$22.7 billion, Solana’s network TVL still lags behind Avalanche’s US$614 million. Likewise, Polygon (MATIC) has a TVL of $840 million, while MATIC has a market cap of $8.2 billion, highlighting the difference.

Furthermore, the Solana network’s seven-day accumulated fees totaling $660,000 do not seem to justify the huge future demand for SOL tokens. Even with this significant increase, it is still lower than the growth of the token supply, which has increased by 3.7% in the past 90 days, equivalent to $65 million per week.

In addition to the regular issuance of SOL, there is also a redemption schedule associated with the failed FTX-Alameda Research exchange. The bankruptcy estate is allowed to sell up to $100 million in digital assets per week, including 55.75 million SOL in September 2023.

NFT data shows Solana is top contender

Solana’s emergence as a strong player in the non-fungible token (NFT) market is one of its notable selling points, given the high cost of issuing and maintaining collections on the leading blockchain Ethereum. However, this advantage is not enough to attract the highest value items and whales to Solana’s NFT market.

related: China announces criminal theft of digital collectibles such as NFTs

Although the 7-day average transaction fee of the Ethereum network has increased to the current US$7.6, its total weekly NFT volume still exceeds Solana by more than 7 times. These data highlight that investors and creators consider factors beyond transaction costs. Despite this, Solana maintains a significant position in the market alongside the leading Bitcoin and Ethereum networks.

Although SOL price corrected 5.5% on November 13, this does not necessarily reflect a decline in online activity or reduced demand for leveraged longs using futures contracts. However, it does suggest that investors have noticed that SOL’s market cap appears to be stretched compared to its peers. The extent of this adjustment remains uncertain.