Considering the fact that Solana has lost nearly 49% of its value in the past seven days, even die-hard SOL traders fear having to run for the hills and take a hit. But with the Solana Network still aiming for the sky with very ambitious plans… could it actually be a blessing in disguise?
Will this cryptocurrency be able to rebound to previous highs? On the other hand, how low might its prices fall? The team at Crypto Lists will delve into these two crucial questions immediately below.
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Underlying Causes of the Crash
It’s first wise to take a quick look at exactly why Solana has lost so much of its value since peaking at nearly $250 dollars in 2021. One factor involves the numerous network outages that occurred in recent months. Developers claim that these faults have been the result of resource exhaustion that led to a denial of service. Still, how would this be possible within a decentralized network? Interestingly enough, research has found that the top five data centers which support this crypto control nearly half of all nodes (1). This hardly represents decentralization and it has (rightfully) spooked some investors.
The other main issue that has come to light over the past few days is the relationship between Solana and FTX. It was originally reported that Binance was set to buy out this flagging crypto exchange. After backing out of the deal, FTX has been left in digital “limbo” and on the brink of collapse.
The problem here is that another trading house known as Alameda Research was closely tied to FTX operations. It just so happens that Alameda holds a massive amount of Solana. When CEO Sam Bankman-Fried decided to close Alameda, rumors began to circulate that its share of SOL tokens might need to be sold in order to raise much-needed liquidity. Investors were understandably afraid and once again, prices tumbled.
Keeping a Close Eye on Implied Volatility and Additional Liquidation
Now that we’ve laid out the groundwork for why we have been experiencing near-record lows in recent times, we need to take the notion of implied volatility (a prediction of short-term price turbulence) into account. At the time that this article was published, these levels had jumped up significantly. When we highlight that BTC implied volatility is hovering around 95%, it’s clear to understand why traders are remaining “on the fences”.
The other variable in terms prices involves whether or not Alameda Holdings is only the tip of the iceberg in terms of liquidating additional tokens. If this comes to pass, there’s no doubt that values will plummet even further. So, we’re left with an important question. Just how low can SOL go?
Finding a Solid Level of Support
Let’s begin by mentioning that not all investors are spooked. Some have cautiously entered into smaller positions in the hopes of turning short-term profits. This is far different when compared to those who might have held tokens since the halcyon days of 2021. The question of Solana reaching a level of support that presents an attractive buy opportunity is therefore a bit subjective. Having said this, many investors seem to be waiting to see if SOL recedes to $10 dollars. What makes this such a seemingly “magical” number?
We need to look at proportions to appreciate why such a situation might be attractive. It should be remembered that Solana experienced a bullish run in April 2022 from $82 dollars to $132 dollars before the subsequent Terra Luna collapse. In other words, even a small bullish run after reaching baseline support could once again cause a short- to medium-term uptick.
Clearing the Air
A final point to make involves forced liquidation. Although this has always been a somewhat scary concept, such moves tend to clear the air in terms of where an asset actually stands. While Solana is currently experiencing a great deal of turbulence, this altcoin is still built upon solid technical foundations and its developers are continuing to seek out partnerships. Purchasing NFTs via the Solana framework is a streamlined process and users pay minimal commissions. Even though this cryptocurency is currently in the digital doldrums, its fundamental principles do not seem to have changed. Simply stated, the smart move could very well be to watch and wait.
Of course, Crypto Lists will also be keeping a close eye on what can only be called an “interesting” situation at the moment. Be sure to check back with us on a regular basis to keep one step ahead of the latest SOL news and events.