Solana (SOL) fell on June 3, cutting net paper losses to 85% seven months after peaking above $260.
SOL price fell more than 6.5% on the day to $35.68 after an unconvincing rebound from 10-month lows.
The SOL/USD pair, now at a historically significant level of support, could see an upside retracement in June and eye the $40-$45 area next, up about 25% from there corresponds to today’s price.
SOL/USD daily chart. Source: TradingView
60% SOL Price Drop Ahead?
A rebound scenario is far from guaranteed, however, and Solana faces headwinds from trading in lockstep with Bitcoin (BTC), the top cryptocurrency (by market cap) that typically drives trends in the top altcoins.
Notably, on June 4th, the weekly correlation coefficient between BTC and SOL was 0.92.
SOL/USD versus BTC/USD correlation coefficient. Source: TradingView
Additionally, Solana is likely to see even bigger losses than BTC if Bitcoin dips lower below its current psychological support level of $30,000.
Meanwhile, the Federal Reserve appears determined to raise interest rates and reduce its balance sheet. As a result of this tightening policy, riskier assets like bitcoin have room to move lower, hurting Solana’s bullish outlook.
A break below SOL’s current support level – around $35 – increases the chances of a pullback towards the $18-25 range, which acted as a strong support area from March to July 2021 and preceded a 1,200% price rally, as shown below .
Weekly SOL/USD price chart. Source: TradingView
This bearish scenario would take SOL almost 60% below today’s price.
Solana Network Outages
The bearish outlook for SOL also comes as the Solana blockchain faces repeated outages, rendering its network virtually unusable for hours for its major dapps, including lending protocol Solend and decentralized exchange Serum.
Solana’s latest software bug appeared on June 1st and shut down the network for 4.5 hours. The biggest blockchain outage happened in January and was down for nearly 18 hours.
Validator operators successfully completed a cluster restart of mainnet beta at 21:00 UTC, after an approximately four and a half hour outage after the network failed to reach consensus. Carriers and dapps will continue to restore client services over the next few hours.
— Solana Status (@SolanaStatus) June 1, 2022
The outages could spook investors in favor of Solana’s competition and have already coincided with several traders reallocating their capital elsewhere.
I just sold all my $SOL for $ADA. Solana is a great project, but I personally cannot in good faith continue to invest in a Tier 1 that shuts down frequently (partial and major outages around 11 times).
#ADA #Cardano
— $Smac07_NFT$ (@Shawn_Deezy07) May 31, 2022
Miles Deutscher, an independent market analyst, believes crypto investors have become cautious after witnessing the recent Terra fiasco. Nonetheless, the analyst claims that Solana’s outages would decrease over time as the network matures.
Related: Alchemy announces support for Solana Web3 applications the day after the blockchain halted
“But if they fail to suppress such events, other L1s will [layer-1 blockchains] will continue to eat away at its market share,” he noted.
8/ However, the reasons why I like Solana remain:
• Scaling with a single global state (liquidity is not fragmented).
• Low cost and fast (despite handling most transactions of all chains).
• Third most developed in the chain (Electric Capital)
• Large list of VC supporters
— Miles Deutscher (@milesdeutscher) June 2, 2022
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
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