The Solana price is now trading in red for 9 days straight which is, per Cointelegraph, a negative record for SOL.
However, after 8 red days previous two times, it bounced back with +10.75% and +14.22%. Solana took a hit last week with 17% plunge amid broader crypto market downtrend.
YouTuber “Gerhard” posted a viral video today explaining the current situation around Solana. Let’s dive into the key points discussed in the video.
Solana’s Market Position
Solana hit an ATH price of $250 in 2021, and its market capitalization has since hit new new highs. However, this discrepancy is largely due to token inflation, meaning there are now more Solana tokens in circulation than in 2021.
Despite the higher market cap, the speaker questions how much upside potential remains for Solana. He compares the blockchain’s current status with the broader cryptocurrency market, focusing on factors like adoption, usage, and valuation.
Solana’s TVL and Market Dynamics
Solana ranks third in total value locked (TVL) among blockchains, behind Ethereum and Tron. However, the speaker casts doubt on Tron’s figures, suggesting they might be artificially inflated.
He noted that Solana, like other cryptos, is highly sensitive to market conditions. During periods of reduced risk appetite, Solana’s metrics have suffered, a lot.
From December 2022, Solana’s market dominance increased from 0.5% to over 3%. Despite this, the speaker warns that the “air might be getting thin” since it’s at 3% for months now.
The speaker also warns of potential downturns in Solana’s price, especially in the event of a broader bear market. Solana’s price relative to Ethereum has reached all-time highs recently.
Challenges in Solana’s DeFi Sector
Another concerning factor is the dramatic drop in Solana’s total value locked (TVL) from $10 billion to just $210 million, a 98% decline within a year. This suggests a loss of confidence and capital in Solana’s decentralized finance (DeFi) ecosystem.
The speaker also discusses the relationship between liquidity and trading volume in Solana’s DeFi sector. Trading volumes peaked in July 2023 but have since declined, which means liquidity providers are earning less. If trading volumes remain low, more liquidity might be withdrawn.
The speaker argues that the current rewards for liquidity providers, around 6% annualized, do not justify the risks involved, such as the potential for hacks or impermanent loss. Given the low activity and substantial capital already deployed, the he believes the risk of further capital outflows is high, which could further depress Solana’s price and market position.
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