Solana prices have suffered some notable declines recently, falling more than 30% since reaching an all-time high in late November.
SOL, the native token of the high-throughput Solana platform, approached $175.00 on December 20, according to Coinbase data from TradingView.
At this point, the digital currency was down approximately 32% since reaching an all-time high of more than $257.00 on November 22, additional Coinbase figures from TradingView reveal.
Since then, the cryptocurrency has recovered somewhat, but it has been unable to recover most of the ground it lost since late November, trading near $185 at the time of this writing.
Market analysts offered several potential explanations for this weakness in the SOL token, including health consolidation and more serious concerns about declining activity on the token’s native platform.
“Solana has been in a down trend since breaking 2021’s all-time high of $260 with a swing wick high of $263.83 on the weekly Nov 22, 2024,” TikTok influencer who goes by Wendy O emphasized through emailed comments.
“This could be because of Bitcoin’s inability to sustain $100,000 or due to 2024 wrapping up, traders and investors taking profits before 2025 or the markets just cooling down in general as some uncertainty comes Q1 2025 as we expect a new administration,” she stated.
Uncertain Policy Outlook
The analyst pointed out that while former President Donald Trump’s reelection has bolstered cryptocurrency markets, there are many uncertainties surrounding exactly what will happen when he returns to the Oval Office.
Earlier this month, Trump revealed that he planned to nominate Paul Atkins, who previously served as a commissioner for the U.S. Securities and Exchange Commission, for the government agency’s top post.
Atkins, who currently serves as the CEO of consulting firm Patomak Global Partners LLC, is expected to take a more pro-business approach to regulation than current SEC Chair Gary Gensler, who has made headlines for his aggressive approach toward cryptocurrency/blockchain industry participants.
Falling Network Activity
One analyst in particular highlighted the sharp change in activity that the Solana network has experienced over the last several weeks.
“Since the end of Nov, Solana has seen a marked decrease in both network activity (daily transactions have nearly halved since Nov 20) and TVL (total value locked) in its DeFi applications,” Alex Lin, cofounder and general partner at venture capital firm Reforge, wrote via email.
“The decrease in network activity can most likely be attributed to the shifting narrative around Solana itself with newer or alternative platforms like Hyperliquid capturing the majority of mindshare for performance and innovation,” he stated, referring to the decentralized exchange, which has managed to generate significant visibility.
“Hyperliquid touts itself as the blockchain to house all finance and has recently seen inflows of more than $1bn and hitting $3.2bn in TVL since launching its native token last month despite having major centralization concerns,” said Lin.
In addition, he emphasized that “Solana is more sensitive to market sentiment shifts compared to BTC or ETH as its growth in 2024 can be attributed to more speculative activities associated with its ecosystem such as memecoins and high-leverage trading.”
A Healthy Consolidation
The analyst also offered a separate, and more neutral possible explanation for the recent declines in the SOL token.
“Solana’s price might have been disproportionately affected by market conditions historically and is now experiencing a healthy correction,” Lin noted.
Tim Enneking, managing partner of Psalion, seemed to be on the same page.
When asked what fueled the recent drop in SOL prices, he stated that “In this case, I think the answer is relatively straightforward: markets, and Solana in particular, have moved very far very fast and they are now consolidating. This is actually a very healthy consolidation prior to the next move up.”
To delve further into this matter, the author of this article inquired into whether profit taking caused this downward price movement, to which Enneking replied “That’s clearly part of the consolidation, as well as tax considerations (especially given that the wash sale rule doesn’t apply to crypto).”
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and SOL.
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