Solana (SOL) has rallied 13% from its local low of $203.30 on December 10, reclaiming $230. This price action has opened the door for further upside, supported by both derivatives and on-chain data. Investors are now asking whether the correction is over and what factors could drive the price to $260 and beyond.
SOL was one of the few tokens to hit a new all-time high in 2024, reaching $264.50 on November 22. However, this momentum was not sustained, as the price of SOL fell 12% amid an 18% increase in the market capitalization of the altcoin group as a whole since November 22.
SOL’s recent success has been partly fueled by Solana’s SPL network tokens, which include memecoins. However, the sector has seen a significant slowdown in both volume and price. Over the past week, Dogwifhat (WIF) fell 8%, BONK (BONK) fell 9%, and Jupiter (JUP) fell 12%. Other projects such as POPCAT (POPCAT) fell 11% and Wormhole (W) also suffered significant declines over the same period.
More worryingly, the on-chain transaction volume of the Solana network dropped by 63% in the week ending December 9, raising concerns about the sustainability of the recent price rally. However, it should be noted that this trend is not unique to Solana; Ethereum, BNB Chain, and Avalanche also saw similar declines.
MEV ‘sandwiching’ strategy linked to SOL’s poor performance
While the exact reason for SOL’s underperformance relative to the broader altcoin market remains unclear, some analysts, including WazzCrypto, have suggested that the “maximal extractable value” (MEV) strategy is the main reason for the recent decline.
According to WazzCrypto’s post on X, most of the value mined on Solana is from the MEV ‘sandwiching’ strategy, in which traders place orders before and after a target transaction to capitalize on the price volatility that transaction causes. The post also highlights an instance where a single address allegedly executed 50% of the MOTHER token’s trading volume, while the majority of other traders suffered losses during similar token launches.
The December 9 crypto market crash benefited SOL as excessive leverage was removed from the system. SOL futures open interest fell 12% to a current level of 22.8 million SOL, and the cost of leveraged gains fell below 1% for the first time in over a month.
After peaking at 6% monthly on December 5 – signaling extreme optimism – funding rates fell sharply on December 9, following liquidations of leveraged long positions. Current market conditions appear healthier, especially as SOL’s total futures open interest now stands at $5.2 billion.
The FOMO sentiment around SOL is further fueled by the $750 price target set by Bitwise, a crypto ETF provider. The firm cites increased institutional investment, an improved regulatory environment, and the emergence of “serious” projects on the network, which could further solidify Solana’s position in the memecoin space.
Additionally, traders are increasingly optimistic that the approval of a Solana ETF in the US is imminent, especially after the resignation of the Chairman of the US Securities and Exchange Commission (SEC) Gary Gensler. With these factors, SOL investors have reason to be optimistic, with a favorable outlook for early 2025 and a stable derivatives market.