Can SOL Reclaim $170? Indicators Signal ‘Buy’

On June 11, Solana’s native token, SOL, reached a new four-week low, pulling back to test the $145 support level. In just four days, the token experienced a sharp 15.8% decline, vastly underperforming compared to the broader cryptocurrency market, which saw a 10% reduction in total capitalization during the same timeframe. Despite this downturn, some analysts suggest that the macroeconomic instability could present a buying opportunity for SOL as indicated by two significant metrics.

Macroeconomic factors have been negatively impacting SOL’s price. Investor concerns have been on the rise, driven by mixed economic indicators suggesting that the stock market may be poised for a correction. This has led to speculation that the United States Federal Reserve might delay cutting interest rates. According to the CME FedWatch tool, traders now believe there is a 48% chance that rates will remain unchanged until September—up from 39% a month ago. After reaching a record high on June 7, the S&P 500 index has stagnated as investors await comments from Fed Chair Jerome Powell on June 12.

Stuart Kaiser, the head of U.S. equity trading strategy at Citigroup, suggests that a rise in the Consumer Price Index (CPI) above 0.4% month-over-month could trigger a broad market sell-off, potentially leading to a 1.5% to 2.5% drop in the S&P 500. Kaiser also warned that the S&P 500 might experience its most significant single-day movement since March 2023. These looming U.S. inflation figures, scheduled for release on June 12, are eagerly anticipated ahead of the Federal Reserve’s rate decisions.

Despite the broader market tensions, SOL investors remain hopeful for the potential approval of a U.S. exchange-traded fund (ETF). Even though the regulatory bodies have only supported Bitcoin (BTC) and Ether (ETH) thus far, Brian Kelly, the founder and CEO of BKCM Digital Asset Fund, views SOL as a strong candidate for an ETF. Discussions by Bitwise’s chief investment officer, Matt Hougan, about the real-world applications of Solana drawing institutional investments, further bolster this optimism.

In recent days, SOL’s underperformance can also be traced back to issues within its own network. Specifically, validators on the Solana network were found exploiting traders through sandwich attacks—manipulating transaction prices for profit at the expense of retail investors. The Solana Foundation responded by excluding these validators from its delegation program, thereby reducing incentives for such harmful actions.

Despite facing a sharp 15% decline within just a few days, several indicators point to stable investor confidence in SOL. This suggests that a price recovery might be imminent once the macroeconomic conditions stabilize. Notably, metrics from on-chain and derivatives data indicate potential upsides for Solana.

For instance, demand for leveraged positions through SOL futures remains unaffected by the declining market conditions. Perpetual contracts, also known as inverse swaps, feature an embedded interest rate. When this rate is positive, it indicates increased demand for leverage among long (buy) positions. Conversely, a negative rate suggests the need for more leverage among short (sell) positions. SOL’s funding rate has remained consistent at 0.01% per eight hours since June 8, which translates to about 0.2% per week, revealing a stable demand between bullish and bearish positions even after a significant price drop.

On-chain data from the Solana network shows an uptick in user numbers and transaction volume. Although some analysts argue that Solana’s low fees could lead to data manipulation, this issue is not unique to Solana and affects other platforms such as Ethereum’s layer-2 solutions and competitors like BNB Chain. Despite these challenges, Solana ranks as the fourth-largest blockchain in terms of 24-hour active addresses interacting with decentralized applications (DApps), particularly on platforms like Jupiter Exchange and Raydium.

Although SOL experienced a steep decline to $145 on June 11, both the derivatives market and the Solana network have demonstrated resilience, indicating that participants are not yet ready to abandon the token. Should the Solana Foundation’s initiatives to mitigate the impact of maximum extractable value (MEV) be successful in enhancing user experiences, reclaiming a price point of $170 for SOL seems achievable.