The market is hot, but Solana is not — Data explains why SOL price is lagging

Solana (SOL) has been on a steady downward trend for the past three months, but some traders believe it may have bottomed out at $26.80 on Oct. 21. It points out a conflict with Aptos Network.

Solana price in FTX, USD.Source: Trading View

The Aptos blockchain, which launched on October 17th, claims to process three times more transactions per second than Solana. But after four years of development and millions of dollars in funding, the debut of a layer 1 smart contract solution has been rather unimpressive.

It is essential to highlight that Solana currently holds a market cap of $11.5 billion at the $32 nominal price level, ranking as the 7th largest cryptocurrency excluding stablecoins. Despite its size, SOL’s year-to-date performance reflects an 82% decline, with its global market cap down 56%.

An unfortunate event negatively impacted the price of SOL

The downward trend accelerated on Oct. 11 after Solana Network’s leading decentralized financial application was hacked for $116 million.

Mango Markets oracle was attacked due to the low liquidity of the platform’s native Mango (MNGO) token used as collateral. To put it into perspective, this hack represents 9% of Solana’s total value (TVL) locked in smart contracts.

Other negative news surfaced on Nov. 2, as German data center operator and cloud provider Hetzner began blocking crypto-related activity. The company’s terms of service prohibit customers from running nodes, mining and farming, plotting and storing his data on the blockchain.Still, Solana nodes have other cloud storage his providers to choose from, and Lido Finance says validators risk mitigated.

Promising partnership announced on November 2 after Instagram Integrated support Allows users to create, sell, and display their favorite digital art and collectibles for Solana-based NFTs. SOL responded immediately with a 5.7% pump in 15 minutes, but the next he followed the entire move in an hour.

To get a better picture of what’s going on with SOL prices, traders can also analyze Solana’s futures market to understand if the bearish news flow has impacted the sentiment of professional traders. I can do it.

Derivative indicators show an unusual degree of apathy

A decent increase in the number of derivatives contracts that are currently in place usually means more traders are involved. Longs and shorts are always balanced in the futures market, but having more active contracts (open interest) allows the participation of institutional investors who require a minimum market size.

Solana futures open interest, USD.Source: Coinglass

Over the past 30 days, Solana’s total open interest has remained fairly stable at $440 million. By comparison, Polygon’s (MATIC) total futures positions surged from $153 million on Oct. 3 to $415 million on Oct. 3.

BNB Chain Token (BNB) showed a similar trend, reaching $485 million from $296 million on October 3rd.

That said, open interest doesn’t necessarily mean a professional investor is bullish or bearish. Futures Annualized Premium measures the difference between a long-term futures contract and current spot market levels.

The Futures Premium (Basis Rate) indicator should perform between 4% and 8% to ensure that traders have their money “locked in” until the expiry of the contract. Therefore, levels below 2% are bearish, while numbers above 10% indicate overly optimistic.

Annualized Solana 3-month futures premium. Source: Laevitas.ch

According to Laevitas data, Solana futures have traded in the opposite direction for the past 30 days, with futures contract prices lower than regular spot exchanges.

Ether (ETH) futures trade at 0.5% per annum, while Bitcoin (BTC) is at 2%. This data is somewhat concerning for Solana as it shows a lack of interest from leveraged buyers.

Rumors about Alameda Research could create further pressure

It’s hard to pinpoint why there’s such apathy for Solana, or why short-selling demand for leverage is completely dominated. Even more interesting is Alameda Research’s influence on the Solana project. Alameda is a digital asset trading company led by Sam Bankman-Fried.

Recently, trader and cryptocurrency Twitter influencer Hsaka expressed concern about whether the company is holding back the price of SOL even after the emergence of a bullish catalyst.

It is highly unlikely that market participants will actually discover Alameda Research’s impact on SOL prices. Still, the theory put forth by Hsaka can explain the rather unusual steady demand and negative basis rate for leveraged shorts. Arbitrage and market-making firms could have used derivative instruments to reduce their exposure without having to sell his SOL on the open market.

There is no indication that short sellers using SOL futures commodities are nearing liquidation or exhaustion, thus maintaining their dominance until the broader cryptocurrency market shows signs of strengthening.