Key Points
The growth of Solana's activity has failed to offset the decline in leverage demand and weak network fees, limiting its short-term bullish outlook.
A short squeeze to $160 requires more solid derivatives support and stronger investor confidence, while macroeconomic uncertainty remains high.
Solana failed to regain $140 on Monday, despite recovering some of its recent losses. The perpetual contracts for Solana have shown negative funding rates, and the decline in on-chain activity on the Solana network continues to weigh on investor sentiment.
Solana has dropped 30% in the past 30 days, underperforming the broader altcoin market. Traders are assessing whether its upward trend can be sustainable.
Many cryptocurrency investors' concerns stem from declining confidence in the U.S. economy, driven by signs of a weakening labor market and an increasing reliance on AI investments.
The CEO of DWS Asset Management, a subsidiary of Deutsche Bank, told Reuters that there is "no ready-made valuation paradigm" for the AI sector and added that more evidence is needed to support high valuations beyond efficiency gains.
After a record 43-day government funding lapse in the U.S., several consumer companies, including Target, Home Depot, and McDonald's, have lowered their sales forecasts following disappointing earnings.
With the U.S. Consumer Price Index (CPI) and unemployment data being canceled for release in October, traders have further reduced visibility on the Federal Reserve's monetary policy decision scheduled for December 10.
Solana's weakness reflects an overall decline in risk appetite, but other factors may also contribute to its underperformance compared to major altcoins. Following the successful launch of a Ripple ETF in the U.S., competition for institutional funds has intensified, and products related to other cryptocurrencies (including Litecoin and Chainlink) are expected to be launched sequentially.
Since Friday, there has been persistent bearish leverage demand for SOL perpetual futures, as funding rates have turned negative, meaning traders are paying to maintain positions that benefit from further price declines. Under neutral conditions, this metric typically ranges from 6% to 12% to compensate for opportunity costs.
The total open interest in SOL futures has decreased by 27% over the past 30 days, indicating reduced leverage demand.
The premium of SOL monthly futures relative to spot prices has dropped to 0%, a level consistent with extremely bearish market conditions. In a neutral environment, this metric typically ranges from 5% to 10%, while negative values indicate a sharp lack of demand for bullish exposure.
Bearish sentiment may persist until there is a significant improvement in the conditions of the SOL derivatives market.
The total locked value (TVL) of the Solana network fell to $10.5 billion on Monday, down 20% from a month ago. Blockchain revenue measured by weekly fees has dropped to its lowest level since May, which helps explain why SOL has lagged behind the broader altcoin market. In contrast, Ethereum's weekly fees only decreased by 5% during the same 30-day period.
Solana remains a clear leader in active addresses and transaction volume, far ahead of the second-ranked BNB chain. More importantly, data from Nansen shows that Solana's activity increased by 13%, while its main competitor Ethereum saw a decline of 15%. This data may help bolster investor confidence in SOL, but it alone is not a catalyst for a sustained bull market.
SOL has risen 14% since hitting a low of $121.50 on Friday; however, this rebound does not guarantee lasting upward momentum, especially as the derivatives market remains weak and network fees continue to show weakness. A short squeeze to $160 cannot be ruled out, but this would require SOL traders to demonstrate significantly stronger confidence.
Related: Coinbase "doubles down" on Solana through latest DEX acquisition
Original: “Solana (SOL) rebounds alongside broader crypto market recovery: Is $160 possible?”
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