Factors Behind the Decline in Solana (SOL) Price This Week: A Closer Look

Factors Behind the Decline in Solana (SOL) Price This Week: A Closer Look

SOL experienced a 9% decline on January 18, reaching a low of $91.40 amid the broader crypto market sell-off. The prolonged rejection from the $100 level over the past 15 days, however, needs to be contextualized within the overall cryptocurrency market, which has struggled to maintain levels above $1.6 trillion in 2024. Despite the recent setback, SOL achieved an impressive 84% gain in December, prompting concerns among investors about the lack of sustained positive price momentum.

1. Fading FOMO for Solana SPL Token Listings and Airdrops
The rally of SOL in December 2023 was fueled by FOMO driven by Solana SPL token airdrops, including Jito (JTO), BONK, and Dogwifhat (WIF). The surge in demand for the Solana Saga Phone was influenced by exclusive offers tied to these airdrops. However, this momentum has waned, with BONK experiencing a 15% correction between January 17 and January 18, and JTO declining by 19% in the same period. Excessive optimism surrounding airdrop expectations, delayed launches, and temporary boosts to decentralized applications (DApps) contributed to the correction.

2. Growth in Deposits within Solana Network’s DeFi Industry
Optimism for SOL’s token performance is linked to the growth in deposits within the Solana Network’s decentralized finance (DeFi) industry. The total value locked (TVL) in SOL tokens peaked at 15.4 million on December 19, 2023, marking a 60% growth from the previous month. While it has stabilized around 14 million, Jito and Marinade Finance liquid staking solutions, along with Kamino, Orca, and Solend DeFi applications, have each surpassed $150 million in deposits. Despite a decline in transactions and active DApp users, Solana’s absolute number of transactions remains high at 72.3 million.

3. Solana’s Network Robustness and Potential for SOL Price Recovery
Solana’s reliance on heavy-processing validation has drawn criticism but also presented opportunities for DApps requiring extensive bandwidth. Despite criticism, Solana has become the third-largest network in NFT marketplace volumes, with NFT volumes reaching $270.5 million, trailing Ethereum by 20%. Notable NFTs on Solana include Saga Monkes, Froganas, Mad Lads, and Tensorians. Solana’s network activity, marked by resilience in DApps volumes and TVL, suggests that there is no immediate risk of a sharp SOL price correction. However, negative pressure on SOL token demand exists due to exaggerated expectations related to airdrops and SPL token performances.

SOL’s current market capitalization is $40.6 billion, with a price of $94, remaining 50% lower than its peak in November 2021. The potential for an upside exists if the network continues to attract interest from projects valuing its stability amid high network processing demand, especially considering competitors’ experiences with increased transaction fees and prolonged instability.

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