Why is Solana (SOL) Falling Today?

Table of Contents

• Bitcoin and Solana Increasingly Correlated
• Pump.fun and Memecoin FUD Raise Concerns
• Solana “Double Bottom” in the Make-or-Break Range

Bitcoin and Solana Increasingly Correlated

Solana’s recent 8% correction can be attributed to a broader market downturn. Following the FOMC meeting’s announcement of unchanged rates, Bitcoin (BTC) experienced a 3% decline, which subsequently triggered Solana’s drop to $166.

Recent data shows a growing correlation between Bitcoin and Solana, with a correlation index of 0.67. This index has steadily increased throughout 2024, after falling during most of Q4 2023. Notably, Solana outperformed Bitcoin by 385% to 57% last year. Year-to-date returns for both assets are now more comparable, standing at 53% and 66%, respectively.

The market downturn has also led to significant liquidations in futures and perpetual markets. Open interest has decreased from $2.78 billion to $2.39 billion over the past 48 hours, closing $400 million in leveraged positions. Liquidations totaled approximately $14 million in the last day.

Pump.fun and Memecoin FUD Raise Concerns

Pump.fun, a popular tool for creating Solana memecoins, recently surpassed Ethereum in cumulative revenue. However, concerns have arisen regarding Solana’s low-liquidity pools and the role of “bot trading,” which has generated unusually high trading volumes. For instance, one project saw nearly $11 million in trading volume despite having only $48 in liquidity, with bots also generating $28,000 in fees through wash trading.

This has led to a divided opinion within the community. Some analysts view bot activity as a normal part of the crypto landscape. Ryan Connor, a crypto researcher, noted that bots account for 50% of internet traffic and are integral to maximizing blockchain value. He stated, “It is incorrect to frame bot activity as illegitimate or to discount the value of bot activity.”

Conversely, others are concerned that the only beneficiaries in the memecoin market are the trading bots and their creators. For instance, over 30 celebrity memecoins launched on Solana have lost an average of 99% since reaching their peak value.

Solana “Double Bottom” in the Make-or-Break Range

Solana is currently retesting its recent equal lows, with the asset completing a liquidity sweep. The Relative Strength Index (RSI) is approaching 50, indicating a neutral market stance between buyers and sellers.

From a technical perspective, Solana needs to maintain its daily position above $165 to avoid a potential 25% drop to $122. If SOL falls below this support level, it could lead to further declines over the coming weeks.

On a more positive note, Solana has formed a double bottom pattern, which was confirmed earlier this week. Currently, SOL is trading below the pattern’s neckline. Trader Tardigrade, a noted crypto analyst, has identified this pattern and anticipates that SOL may experience a choppy period between $190 and $200. He added, “The measuring target from this double bottom is $320.”

This article is intended for general informational purposes only and should not be construed as legal or investment advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Cointelegraph.