Solana shows potential for a drop below $129

Solana has fallen 25% in a month, struggling to regain critical levels, causing concern among investors as it is trading at $134.

Solana (SOL) has been on a downward trajectory over the last month, seeing its value decrease by 25%. The cryptocurrency has failed to overcome critical technical levels, indicating that it may continue to face significant challenges in the future. This decline has raised concerns among both investors and traders, as Solana had previously been one of the most promising blockchain networks due to its high performance and low transaction costs.

However, recent market conditions have proven difficult for the asset, raising questions about its near-term prospects. At the time of writing, SOL is trading at $134 SOL-USDT on Gate.io Exchange.

Persistent downward pressure on Solana

The last 30 days have been particularly challenging for Solana (SOL), as the cryptocurrency consistently trades below key moving averages. On August 27, SOL attempted to rally but ultimately failed, falling below the 20-day exponential moving average (EMA) and the 50-day simple moving average (SMA). Currently, these moving averages are positioned at $147.72 for the 20-day EMA and $155.74 for the 50-day SMA, both of which SOL has failed to overcome convincingly. Failure to overcome these resistance levels has only increased the bearish sentiment surrounding the token.

Moving averages are essential tools for traders and serve as indicators of market momentum. When an asset like SOL remains below these averages, it typically encounters substantial selling pressure, making it difficult for the price to gain upward traction. This has been evident in SOL's performance, as a brief rally on August 24 quickly lost steam, leading to a pullback below these resistance levels. The inability to maintain momentum above these averages is a major red flag, indicating that sellers are firmly in control of the market.

Signs of weak demand and increasing selling pressure

Further emphasizing Solana's bearish outlook is its Relative Strength Index (RSI), which currently stands at 40.89. An RSI below 50 generally indicates that selling pressure is stronger than buying interest, and with SOL's RSI trending down, it is clear that investors are hesitant to accumulate more token. This reluctance to buy has created a negative feedback loop, where lack of demand leads to further price drops, which in turn discourages further purchases.

Furthermore, the SOL futures market reflects a similarly pessimistic view. In recent days, the funding rate has turned negative, indicating that more traders are shorting the asset, betting that its price will continue to fall. This negative funding rate, which has persisted since August 28, suggests that the market expects further downward movement for SOL. Bearish sentiment in the futures market is often a precursor to continued declines in the spot market, as it reflects expectations of the broader market.

The combination of weak demand in the spot market and negative sentiment in the futures market paints a bleak outlook for Solana in the near term. The asset's inability to attract buyers, coupled with the increasing number of short positions, indicates that the path of least resistance is down.

Possible price scenarios

Given the current conditions, the price of Solana is likely to suffer further declines. If the downtrend continues, SOL could fall to around $133.64 in the near term. This level could act as temporary support, but if the selling pressure remains strong, the price could even fall to $110. These price levels are critical as they represent points where a significant amount of buying interest could arise, which could stop the decline. However, if market sentiment continues to deteriorate, these levels may not hold, leading to even further declines.

However, there remains a possibility, albeit small, that SOL could undergo a reversal if there is a significant increase in demand. If this happens, the price could rise to around $148.27, lining up with the 20-day EMA. Breaking above this level would be crucial for SOL to regain some bullish momentum, but the prevailing market sentiment suggests this outcome is less likely. For a sustained recovery, Solana would need to surpass the 50-day SMA at $155.74, which would indicate a possible shift in market sentiment from bearish to bullish.

Broader market influences on Solana

Solana's recent struggles must also be understood in the broader context of the cryptocurrency market. Many digital assets have been under pressure due to a combination of macroeconomic factors, including rising interest rates, regulatory uncertainties, and changes in investor sentiment. The Federal Reserve's monetary policies, particularly regarding interest rates, have contributed to increased volatility in financial markets, including cryptocurrencies. In such a challenging environment, assets like Solana, which previously experienced rapid growth, are now experiencing significant corrections. These macroeconomic factors have created a risk-averse environment, in which investors are more inclined to reduce exposure to volatile assets such as cryptocurrencies.

Additionally, the competitive landscape within the blockchain space has become more intense. Solana, known for its high transaction speeds and low costs, faces competition from other layer 1 blockchains such as ethereum and emerging platforms such as Aptos and Sui. As these competitors evolve and improve their capabilities, Solana must continue to innovate to maintain its position in the market. The network's ability to attract developers and new projects will be crucial in determining its long-term success. However, current technical indicators suggest that SOL may struggle in the near term, especially if overall market conditions do not improve.

Additionally, Solana's recent price drop could also impact its broader ecosystem, including decentralized applications (dApps) and non-fungible tokens (nfts) created on the network. A prolonged downtrend could discourage developers and users from engaging with the platform, which could lead to a decline in network activity and adoption. This could create a vicious cycle where a price drop leads to a reduction in network activity, further exacerbating the downward pressure on SOL.

SUN in the spotlight

The inability to break above the key moving averages, combined with weak buying interest and a negative outlook in the futures market, points to a bearish scenario for SOL. While there is a chance for a recovery if market demand picks up, the most likely scenario at the moment seems to be for further declines, which could push the price below $130.