Solana, the popular cryptocurrency that gained attention during the 2020-2021 bull market, has experienced its fair share of volatility in recent times. From the plummeting prices following the collapse of FTX to the selling pressure caused by the approval of FTX’s digital assets sale, Solana has been on a rollercoaster ride. In this article, we will delve into the latest developments surrounding Solana and analyze the potential implications for its future.
After reaching lows of $9.89, a staggering 96.3% drop from its peak of $259.96, Solana’s price staged a recovery at the start of 2023. It gained 175%, reaching a peak of $27.37, marking a significant turnaround for the cryptocurrency. The growth in price was accompanied by the overall growth of the Solana ecosystem, indicating positive sentiment and potential for further expansion.
Selling Pressure and Unlock Schedule
However, the recent approval of FTX’s digital assets sale by the Delaware Bankruptcy Court created tremendous selling pressure for Solana. The sale includes 55.75 million SOL tokens worth $1.062 billion. This news caused the SOL price to touch a weekly low of $17.96. Despite this, there are indicators suggesting a counter move to the upside could occur.
The majority of FTX’s SOL stake is vested from 2025 to 2027, leading some experts, such as crypto trader MartyParty, to believe that the selling pressure is overblown. Additionally, derivatives traders contributed to the selling pressure through short orders, potentially setting the stage for a counter move to the upside.
The Selling Pressure Distribution
The Solana Foundation released an update on FTX’s Solana holdings, revealing that a significant portion of the SOL tokens held by the defunct exchange are locked until 2027. Out of FTX’s total holdings, more than 33 million SOL tokens, accounting for over 60%, have yet to be unlocked and sold in the market.
To limit the selling pressure, there are restrictions in place. The first week has a cap of $50 million, followed by subsequent weeks with a cap of $100 million. The limit can be increased to $200 million with court approval or the approval of the creditors’ committee and ad hoc committee. With these measures, the selling pressure will be distributed over time, potentially minimizing its impact on the SOL price.
Potential Volatility and Market Opportunities
While the SOL price may exhibit volatility during this period, market makers and high-volume traders might find opportunities in the futures market. The relatively small percentage of FTX’s selling pressure, which accounts for around 4% of the weekly spot exchange volume, indicates that the impact might not be as significant as some fear.
The funding rate for perpetual swap contracts on crypto exchanges dropped to -21.1% per annum, suggesting a crowding of short orders. This increase in short orders, along with the negative funding rates, opens up the possibility of a short squeeze. A short squeeze occurs when short traders are forced to buy back an asset at a higher price, potentially causing the asset’s price to surge.
Technically, SOL has faced resistance from a descending trendline since July. It is currently trading below its 50- and 200-day moving averages, which could act as resistance levels. These technical factors may influence the price movement of SOL in the near future.
Solana has experienced its fair share of ups and downs in the recent past. The collapse of FTX and the subsequent selling pressure have tested the resilience of the cryptocurrency. However, with the unlock schedule and measures in place to distribute the selling pressure over time, the impact on the SOL price might be mitigated. Additionally, the potential for a short squeeze and market opportunities in the futures market could add further complexity to the situation. As Solana navigates these challenges, its future remains uncertain, but the overall growth of the ecosystem and positive sentiment suggest that it still holds potential for further advancement.