Solana’s recent price decline can be attributed to Ethereum’s strong performance in comparison and a growing trend of outflows from the Solana ecosystem.
The native token of Solana, SOL, has experienced a decline of around 2% over the past day, settling at $173.20 compared to its previous value of $171. This dip is part of a correction phase initiated two days ago, leading to an overall decrease of roughly 8.25% during this period.
Currently, key factors contributing to the decline in SOL price are a competing layer-one blockchain, Ether (ETH), experiencing stronger performance with its ticker down to $3,706, and a rise in outflows from the Solana ecosystem.
Solana suffers as Ethereum steals the limelight
The price of SOL has been on a downward trend due to growing expectations of approval for spot Ether exchange-traded funds (ETFs) in the United States. Notably, the SOL/ETH pair has decreased by 22.65% since May 20, coinciding with the U.S. Securities and Exchange Commission (SEC) reaching out to Ether ETF applicants for updates on their 19b-4 filings.
ETFs are favored investment tools since they offer exposure to an asset without direct ownership. Approval of spot Ether ETFs could spur demand for ETH, as institutional investors and others may opt for Ethereum via these vehicles. This increased focus on Ethereum might divert funds away from Solana and its native token, SOL, potentially impacting Solana’s ecosystem negatively.
Solana ecosystem is witnessing outflows
In May, the total value locked (TVL) within the Solana ecosystem experienced a notable decline. As of May 22, the amount of SOL locked stood at 27.68 million, marking a decrease from its peak earlier in the month when it reached 29.49 million SOL.
The decrease in Solana’s Total Value Locked (TVL) picked up pace after the announcement on May 20 regarding the potential approval of spot Ether ETFs. At that time, the TVL was recorded at 28.34 million SOL, indicating that the news about Ether ETFs could have played a role in the withdrawals from the Solana ecosystem.
Reduced Total Value Locked (TVL) in Solana suggests waning trust in the platform, leading to increased sell-offs and contributing to the decline in SOL price.
SOL price: overbought correction in progress
Solana’s price saw a decline following a situation where its daily relative strength index (RSI) neared the overbought threshold of 70. Moreover, selling pressure intensified due to a resistance confluence around $186, marked by the presence of the 0.786 Fibonacci retracement line and a short-term ascending trendline.
As of May 23, SOL has been oscillating within a Fibonacci level range, encountering resistance at $186 and finding support at $173.50. Zooming out, the cryptocurrency is following an upward parallel channel, suggesting a higher probability of descending towards the lower trendline in May.
This projected lower trendline coincides with SOL’s 50-day exponential moving average (50-day EMA), represented by the red wave, estimated around $155.75. This marks a decline of approximately 10.70% from its current price levels.
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