Joel Frank
At the end of December, SOL, the token that powers Solana’s high-performance smart-contract-enabled blockchain, was on its knees. The cryptocurrency briefly fell under $8.0, its lowest in nearly two years. Given the price slide and catastrophic decline in trade value locked (TVL) across Solana-based Decentralized Finance (DeFi) protocols in wake of the collapse of Sam Bankman-Fried’s FTX/Alameda empire, many pronounced the Solana ecosystem.
Bankman-Fried and his companies had been major financial backers, liquidity providers and users of the Solana blockchain and its ecosystem of applications. How things have turned around in January. Since the end of December, Solana has surged roughly 140%. Gains since last December’s lows stand at closer to 200%.
What’s Has Spurred the Recovery?
Multiple factors have supported the rebound. Firstly, crypto markets in general have enjoyed their best January in many years thanks to bets that 2022’s Fed tightening-induced bear market might now be over, with the Fed expected to slow the pace of tightening and eventually ease interest rates in 2023.
Secondly, as discussed in a recent article, pessimism about the outlook for the Solana ecosystem was probably overdone. The Solana blockchain has seen no noticeable drop in daily transactions since the abrupt collapse of FTX and Alameda, despite the evaporation of liquidity across its DeFi applications.
The success of the Solana-based dog-inspired meme coin Bonk! also seemed to help. Bonk!, which was distributed around the time of last Christmas, invigorated the tired, downtrodden community of Solana developers, investors and users at a time when they most needed it, and reminded the broader cryptocurrency market that Solana does have a decentralized community of supporters of its own.
Finally, amid all the above-noted pessimism, it seems as though the market had positioned to heavily short. Data from coinglass.com shows Solana short positions getting absolutely obliterated throughout the month of January.
What to Expect of SOL in February?
It remains to be seen whether Solana’s massive January recovery can be continued into February. Yes, the ecosystem hasn’t died. But there are growing fears that amid the announced departure of three of Solana’s top non-fungible token (NFT) platforms to Ethereum and its associated layer-2 scaling solutions, Solana may start falling behind its competition.
Technically speaking, the fact that the cryptocurrency has failed to break back above the key $25-$26 resistance area, which would have opened the door to a quick run toward $39, is another worry.
Many macro strategists are warning that the Fed could deliver a nasty hawkish surprise on the 1st of February and this, combined with technical selling, could send SOL back towards support in the $20 area. Indeed, Solana appears to be teasing a break below a short-term bullish flag pattern that it has been in since the middle of the month.
Related Articles
- Is it Too Late to Buy Solana? Crypto Experts Give Their SOL Price Predictions for 2023
- How to Buy Solana UK – Beginner’s Guide
- Here’s All the Reasons Why Solana is Not Dead and Has a Great Future Ahead
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This article was written for Business 2 Community by Joel Frank.
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