The price of Solana (SOL) is down, but the network activity is showing strength
Solana's (SOL) native token, SOL, experienced a 9.8% decline between January 30 and February 1, failing to break above $104 resistance for the fifth time in four weeks. Considering the longer time frame, SOL decreased by 10.7% in 30 days, Ether (ETH) and BNB (BNB) decreased by 1.2% and 2.6% respectively in the same period. This leads investors to question the reasons for SOL's underperformance, especially given its strong network fundamentals.
American regional banks pose a threat to the market, including crypto
From a broader perspective, the cryptocurrency market has been under pressure since January 31 when the US Federal Reserve (Fed) decided to keep interest rates unchanged at 5.25%. The central bank said the target range should remain unchanged until there is “substantial confidence that inflation is moving towards 2% sustainably”. Investors fear the crisis in US regional banks could worsen as these institutions are under pressure as their fixed-income portfolios are below current interest rates.
In the year Shares of New York Community Bancorp (NYCB), which bought the defunct crypto-friendly signature bank in 2023, have fallen 42 percent since Jan. 30 after reporting a $260 million loss in the fourth quarter of 2023. In March 2023, Signature Bank officially closed and was subsequently taken over by the New York Department of Financial Services (NYDFS). The risk of contamination has caught the attention of traders and investors, according to BitMEX co-founder Arthur Hayes.
Jaypow and Bad Burl Yellen will be printing money very soon. $NYCB rises 10x against estimates on “surprising” losses on loan defaults. Guess the banks aren't fixed.
The 10-year and 2-year yields have fallen, signaling that the market expects some renewed banker bailout correction… pic.twitter.com/k0Ieq2jKPK
— Arthur Hayes (@CryptoHayes) January 31, 2024
While Hayes expects an initial negative impact on Bitcoin if the Fed does not opt for a quick bailout, the effect could be positive for cryptocurrencies as investors raise their inflation expectations. Whether the stimulus package comes through a revamped Bank Term Funding Program (BTFP) or cash injection through the NYDFS, the overall effect is more money flowing into the financial system.
So why did the SOL price go down?
The first question one must ask is the reasoning behind the $104 resistance, and the answer may lie outside the Solana ecosystem. At $104, Solana has a market capitalization of $45 billion, which matches the price of its direct competitor, BNB. However, BNB Chain holds a total value locked (TVL) of $3.54 billion, more than double Solana's $1.6 billion, according to DeFillama.
Solana's decentralized applications (DApps) activity is significantly lower than BNB Chain. BNB Chain's total active addresses connected to DApps (UAW) reached 3.3 million in 30 days, which is significantly higher than Solana's 2.65 million. Similarly, the 30-day volume of BNB Chain DApps reached $20.8 billion, a huge difference from Solana's $2.75 million.
The latest focus on the Solana network was the January 31 airdrop of Jupiter (JUP), which currently has a market capitalization of $800 million. The successful launch of the Jupiter Decentralized Exchange (DEX) collector was celebrated by the members of the Solana Foundation, because millions of transactions were carried out without any problems. To date, more than 438,000 addresses have requested their JUP airport, and 9,391 have received more than 5,000 JUP – the equivalent of $3,000 at current prices.
Related: Why Is Bitcoin Price Down Today?
In addition to the success of Jupiter's airdrop, the Solana ecosystem has seen significant interest in the past week. This includes other decentralized exchanges, some non-perishable token (NFT) marketplaces, commodity protocols, gaming and liquidity solutions.
Even if one excludes Jupiter's inflated airdrop numbers, quite a few Solana dapps are showing user growth, including MeanFi, MarginFi, Wormhole, Drift Protocol, Kamino Finance, and Jito. Basically, there is no sign of weakness in Solana's network activity; It's quite the opposite.
As for the possibility of SOL breaking above $104 and eventually surpassing the price of BNB, that remains an open question, as Solana still needs to prove itself among the top 3 networks in terms of TVL and volumes.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
