Solana (SOL) is currently retesting critical support at $165, where equal lows were formed earlier in the week. If the asset closes a daily position below this range, it may open the possibility for a further 25% drop to $122 over the next few weeks.
Bitcoin and Solana increasingly correlated
Solana’s 8% correction over the past day can be associated with a marketwide drawdown. After the FOMC meeting announced unchanged rates, BTC witnessed a 3% decline, which triggered SOL’s drop to $166.
SOL witnessed a strong drawdown as data suggests that both assets currently share a 0.67 correlation index.
As observed in the chart, the index has risen gradually over the course of 2024 after declining for the majority of Q4 2023. During that period, SOL outperformed TC by 385% to 57%. In 2024, the year-to-date returns were more comparable at 53% and 66%, respectively.
SOL’s market meltdown also led to strong liquidations in futures and perpetual markets. Open interest dropped from $2.78 billion to $2.39 billion in the past 48 hours, i.e., $400 million in leveraged positions have been closed. Liquidations piled up around $14 million over the past day.
Pump.fun and Memecoin FUD raise concerns
Pump.fun, a Solana memecoin creation tool, has been in the limelight over the past few weeks. Its cumulative revenue surpassed Ethereum earlier this week.
However, Solana’s ecosystem is under scrutiny for its low-liquidity pools, where "bot trading" has been generating inorganic trading volume. For example, one peculiar project had close to $11 million in volumes for a mere $48 in liquidity. Bots also generated $28,000 in fees just by wash trading with the project.
This situation has split the community, with certain analysts inferring that bot activity is normal in crypto. Ryan Connor, a crypto researcher, said that bots account for 50% of internet traffic and that most chains want to maximize value by taking bot activity into consideration. He said,
“It is incorrect to frame bot activity as illegitimate or to discount the value of bot activity.”
On the other hand, certain proponents raised concerns that the only winners in the memecoin circle are trading bots and their deployers. If celebrity coins are taken as an example, over 30 celebrity memecoins that have launched on Solana have lost an average of 99% since reaching their peak value.
Solana "double bottom" is in the make-or-break range
Solana is currently re-testing its recent equal lows, and the asset has completed a liquidity sweep. The relative strength index, or RSI, is also nearing 50, which means the indicator is nearing neutrality between buyers and sellers.
From a bullish perspective, Solana must retain its daily position above $165. Otherwise, it can sharply retest its long-term equal lows around $122, representing a 25% drawdown from current market value.
A positive trend that remains active is Solana’s double bottom pattern. It was confirmed earlier in the week, and now it is trading below the pattern’s neckline.
Trader Tardigrade, crypto analyst and content creator, also identified the pattern and believed that SOL may experience a choppy period between $190 and $200. However, he added,
“The measuring target from this double bottom is $320.”
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
