Solana price hits a 2023 high, but do strong fundamentals back the SOL rally?

SOL’s price rallied to a year-to-date high above $30, but Solana’s struggle with increasing its user stats calls the current bullish momentum into question.

Solana’s (SOL) price briefly surged to a new year-to-date peak on June 14 after Ripple’s partial win against the United States Securities Exchange and Commission in the case contesting XRP’s (XRP) position as a security. 

The token recorded gains of 48.09%, reaching a peak of $32.40 as news of the court ruling spread, before retracing below the $30.00 level.

The positive gains following the verdict not only eliminated the losses from June 2023 when the SEC considered SOL a security in its lawsuit against Binance and Coinbase, but it also reclaimed levels not seen since the FTX collapse in November 2022.

However, the network’s usage and market charts suggest that a long-term bullish price trend is unlikely, with the $30 level forming a crucial resistance level.

Solana ecosystem growth stalls

The total fees paid on Solana are still ranging below Q3 2022 levels, per Token Terminal data, referring to a time before the FTX collapse, suggesting that the network’s activity has failed to revive completely.

The blockchain’s ecosystem had close ties to Sam Bankman-Fried, the infamous founder of the FTX exchange and multiple projects in the ecosystem that secured investment from Alameda Research. Hence, its ecosystem suffered severely after the FTX collapse.

Solana’s active user data paints a similar picture, with active addresses trending near yearly low levels.

The project continues to show signs of difficulty in securing a product market fit in decentralized finance (DeFi) despite the traders’ early optimism about it. The total deposits on Solana, representing its DeFi liquidity, is $317 million, down 97% from its peak of over $10 billion in November 2021.

Nevertheless, the NFT ecosystem on Solana has thrived as it maintained the third position in monthly NFT trading volume since June 15.

Its trading volumes witnessed a small spike in June, however, they have fallen toward yearly low levels in July, suggesting that not much has changed since FTX’s collapse.

Moreover, in the gaming sector, the most popular games on Solana — Genopets, Tap Fantasy and Aurory — have fewer than 10,000 monthly users, according to DappRadar. The numbers are far less than competing networks, such as Near, Polygon, Ronin Network and Arbitrum, which have more than double the monthly players for specific games.

The stagnant growth in the gaming sector once again suggests that the fundamentals have remained unchanged over the past few weeks.

Still, Solana’s team has continued to roll upgrades to improve the speed and scalability of the blockchain and has an ambitious roadmap ahead.

The Firedancer upgrade being developed by Web3 infrastructure development and investment firm Jump Crypto will increase Solana’s speed to over 1 million transactions per second by introducing a next-generation validator client. The upgrade is expected to arrive sometime in late 2023 according to the Jump Crypto website.

The performance of the blockchain post-Firedancer implementation will likely help in shaping its price trend. The blockchain’s use especially in high-frequency applications like trading or gaming and its ability to mitigate network downtime risks will be crucial in determining its success.

However, until then, the project’s fundamentals do not support the arrival of a new bullish trend.

Related: Ethereum founder says he hopes Solana gets a ‘chance to thrive’

SOL price analysis

The SOL/USD pair moved above the resistance from the long-term descending trendline since the 2021 peak, technically indicating an end to the long-term bearish trend.

However, buyers face considerable hurdles at $30.00, which has formed a long-term support and resistance level. A confirmation of a long-term bullish trend will come only after buyers build support above this level.

Given the swift rise after Ripple’s news on June 13, there’s a likelihood that SOL can retest the trendline around $18.00 before making a substantial move higher. The yearly lows and long-term horizontal level at $12.76 will provide support to buyers in case of a downside.

Nevertheless, the weekly Relative Strength Indicator (RSI), a momentum indicator, suggests that there’s more room for upside.

The SOL/BTC pair faces resistance from the yearly peak level of around 0.00114 Bitcoin (BTC). The 50-day weekly moving average at 0.00104 BTC level also appears to be acting as a crucial resistance as its price peaked exactly at this point on June 14.

The perpetual swap market suggests a probable pullback due to the significant increase in long interest, which raises the possibility of a contrarian trade to the downside.

The funding rate for SOL perpetual swap contracts, which reflects the sentiment of perpetual traders toward an asset, surged to a two-month high. This indicates that many traders opened long positions following the positive breakout on June 14, driven by fear of missing out (FOMO) sentiments.

The accumulation of long orders has the potential to trigger a long squeeze in the opposite direction, as more sophisticated traders target the stop losses of long players.

While Ripple’s favorable court ruling in its case against the SEC revived hopes around SOL’s position as a security in the United States. The financial regulator is expected to meet the same fate in its fresh lawsuits against Coinbase and Binance.

However, the network’s growth and technical levels suggest that many hurdles exist and a medium to long-term bullish price is unlikely.

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