Solana's SOL Drops 14% as Demand for Leveraged Positions Surges

Solana's native cryptocurrency, SOL, experienced a significant setback as it faced strong rejection at the $158 level on Monday, followed by a drop to $143 by Wednesday, marking a 14% loss over seven days. This decline has raised concerns among traders about the likelihood of reclaiming the $200 level, especially as demand for leveraged SOL positions surged amid the recent price weakness.

As of Wednesday, the open interest on SOL futures reached 45.7 million SOL, a 19% increase from the previous month. This surge in open interest, valued at $6.7 billion, underscores the heightened leverage on both sides of the market. The funding rates on perpetual futures, a key metric for understanding market sentiment, fell to 0% on Wednesday, indicating a growing appetite for bearish positions. This rate has failed to stay above the 15% annualized threshold over the past three months, reflecting a broader lack of confidence among bulls.

SOL’s performance is closely tied to network activity on Solana, which has stagnated over the past three months following a record high in January. The total value locked (TVL) on the Solana network has remained steady at nearly $10 billion, while weekly revenue from decentralized applications (DApps) has dropped below $40 million. This decline in DApp activity is a significant factor contributing to the recent price weakness of SOL.

The overhyped excitement fueled by memecoin activity, particularly following the launch of the Official Trump (TRUMP) token on Solana, has also played a role in SOL’s recent decline. This caught traders off guard, as previous efforts by companies aligned with United States President Donald Trump had largely favored Ethereum.

The potential approval of a SOL spot exchange-traded fund (ETF) by the US Securities and Exchange Commission is seen as the most significant short-term catalyst for the token. However, analysts argue that SOL stands to benefit even more from the long-term growth of tokenized securities on the Solana blockchain. According to a Cantor Fitzgerald equities research report, Solana is “meaningfully better than Ethereum across every metric,” and expect an increasing number of companies to adopt SOL as a treasury asset. They point to strong developer growth and greater operational efficiency compared to Ethereum’s more complex layer-2 ecosystem.

While the $200 SOL price target may appear out of reach based on derivatives data, growing institutional interest and blockchain adoption could swiftly reverse current market sentiment. Tokenized TradFi and RWA assets could reignite SOL’s long-term growth potential, providing a much-needed boost to the token’s price. However, for SOL to reclaim the $200 level, a significant change in investor perception is critical. In the absence of renewed confidence, the market may continue to face selling pressure.