Solana (SOL) has risen 13% from the local bottom of $203.30 on December 10, reclaiming the $230 level. This price movement has opened up further growth opportunities, supported by both derivative indicators and on-chain data. Investors are now questioning whether the correction has ended and what factors could drive the price to $260 and beyond.
SOL is one of the few tokens to reach a new all-time high in 2024, reaching $264.50 on November 22. However, this momentum was not sustained, as the price of SOL decreased by 12% amid an 18% increase in the market capitalization of the altcoin group since November 22.
SOL/USD (green) compared to altcoin market capitalization (green), USD | Source: TradingView
The recent success of SOL is partly attributed to the SPL tokens on the Solana network, including memecoins. However, this sector has experienced a significant slowdown in both volume and price. Over the past week, Dogwifhat (WIF) fell by 8%, BONK (BONK) dropped by 9%, and Jupiter (JUP) decreased by 12%. Other projects like POPCAT (POPCAT) fell by 11% and Wormhole (W) also experienced a significant decline during the same period.
Solana on-chain transaction volume over 7 days, USD | Source: DefiLlama
More concerning is that the on-chain transaction volume of the Solana network has decreased by 63% in the week ending December 9, raising concerns about the sustainability of the recent price surge. However, it should be noted that this trend is not limited to Solana; Ethereum, BNB Chain, and Avalanche also experienced similar declines.
The MEV 'sandwiching' strategy is related to SOL's poor performance.
Although the exact reason for SOL's underperformance compared to the broader altcoin market remains unclear, some analysts, including WazzCrypto, suggest that the 'maximal extractable value' (MEV) strategy is the main cause of the recent decline.
According to WazzCrypto's post on X, most of the value extracted on Solana is from the MEV 'sandwiching' strategy, where traders place orders before and after a target transaction to capitalize on the price volatility caused by that transaction. The article also highlights the case where a single address is said to have executed 50% of the trading volume of the MOTHER token, while the majority of other traders suffered losses in similar token launches.
The cryptocurrency market decline on December 9 benefited SOL as excessive leverage was removed from the system. The open interest of SOL futures contracts decreased by 12%, reaching the current level of 22.8 million SOL, and the cost of bullish leverage fell below 1% for the first time in over a month.
8-hour funding rate of SOL perpetual futures | Source: CoinGlass
After peaking at 6% per month on December 5 – signaling extreme optimism – the funding rate sharply declined on December 9, following the liquidation of leveraged long positions. Current market conditions appear healthier, especially with the total open interest of SOL futures currently at $5.2 billion.
The FOMO mindset towards SOL is further driven by the price target of $750 set by Bitwise – a cryptocurrency ETF fund provider. The company cites increased institutional investment, improved regulatory environment, and the emergence of 'serious' projects on the network, which could further strengthen Solana's position in the memecoin space.
Additionally, traders are becoming increasingly optimistic that the approval of a Solana ETF in the US is imminent, especially after the resignation of SEC Chairman Gary Gensler. With these factors, SOL investors have reasons to be optimistic, with a favorable outlook for early 2025 and a stable derivatives market.
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