Solana (SOL), currently ranked as the fifth-largest cryptocurrency by market cap, has seen a recent price recovery following a sharp sell-off earlier in the week. This bullish rebound has reignited interest from investors, but caution is warranted. Despite the positive momentum, several indicators suggest that the rally may not last long. A price correction of up to 15% seems probable for Solana in the short term, driven by a combination of on-chain data, technical analysis, and market sentiment. Here’s a comprehensive breakdown of the key factors contributing to this outlook.
1. Declining Address Activity on the Solana Blockchain
One of the most prominent signals indicating a potential downturn for Solana is the recent decline in address activity on its blockchain. According to data from The Block, the number of new and active addresses on Solana has decreased significantly in September. While address activity remains above the 2024 average, this dip suggests that investor interest in Solana might be waning.
New and active addresses serve as key metrics for understanding user engagement and demand within a blockchain network. A reduction in these metrics often signals that fewer people are actively participating in transactions, which could lead to reduced demand for SOL tokens. If this trend continues, the price of Solana may struggle to maintain its current levels, ultimately driving it lower.
2. Bearish Technical Indicators
The second factor pointing to a potential 15% price decline for Solana is its technical chart setup. Despite the recent 4.5% uptick in SOL’s price, which brought it to $142.15 at the time of writing, there are strong bearish indicators across multiple timeframes.
On the weekly chart, Solana remains down 9.6%, and several technical indicators are flashing warning signs. One of the key indicators is the Moving Average Convergence Divergence (MACD), which tracks the relationship between two moving averages of a security’s price. The MACD for Solana, both on daily and 4-hour charts, shows a negative momentum, implying that the bullish trend may soon reverse.
Additionally, Solana has been trading in a narrow range, between $120 and $163, since August. The recent price dip to $110 earlier in the same month underscores the asset’s vulnerability. Currently hovering around $140, SOL is sitting near the midpoint of this range, but further downward pressure could push it toward the lower bound of $120—a decline of roughly 15%.
If a steeper correction occurs, the next key support level is $110, where Solana previously found a floor. On the flip side, for Solana to continue its upward trajectory, it would need to break above the critical $158 resistance level and maintain a daily close above it. Failure to do so could lead to further consolidation or decline.
3. Open Interest Decline Signals Weakening Market Participation
A significant indicator reinforcing the bearish sentiment is the drop in Solana’s Open Interest (OI). Open Interest measures the total number of active positions in a futures contract. A declining OI typically signals that traders are closing their positions, meaning money is flowing out of the market.
Data from Coinglass reveals that Solana’s OI fell by about 20% between September 30 and October 4. This reduction suggests that traders are becoming less confident in Solana’s price stability or future growth potential. As OI decreases, it can exacerbate selling pressure, leading to further price drops. If this trend continues, SOL could see a price correction that brings it closer to the $120 mark.
Key Updates in the Solana Ecosystem
While the technical and on-chain metrics point toward a potential short-term correction, there are some positive developments within the Solana ecosystem that could support future growth. One of the most significant is the potential launch of a Solana Exchange-Traded Fund (ETF), which could provide institutional investors with an easy way to gain exposure to SOL.
According to Bloomberg ETF analyst Eric Balchunas, the approval of a SOL ETF will likely depend on the outcome of the 2024 U.S. Presidential Elections. If Donald Trump wins the election, analysts believe that the regulatory environment could become more favorable, leading to an ETF approval as early as 2025.
Another crucial development is the upcoming token unlock set for this month. Solana is preparing to unlock 524.03 million tokens, worth approximately $81.56 million. While this event could increase liquidity in the market, it also raises concerns about a potential selloff. A large influx of tokens could overwhelm buyer demand, placing downward pressure on SOL’s price in the short term.
Conclusion: Proceed with Caution
Solana’s recent price recovery has been encouraging for investors, but the data suggests that this momentum may not last. With declining address activity, bearish technical indicators, and a drop in Open Interest, a 15% correction is likely in the near future. However, the long-term outlook for Solana remains tied to broader ecosystem developments, such as the potential ETF approval and upcoming token unlock events.
As always, investors should monitor these key factors closely and make informed decisions, keeping in mind both the risks and opportunities that Solana presents in this dynamic market.