Shrinking Liquidity Places Solana on Shaky Ground as Profitability Declines: Insights from Glassnode

Shrinking Liquidity Puts Solana on Unsteady Ground as Profitability Deteriorates: Glassnode

The Solana network is facing significant challenges as it experiences thinning liquidity and declining profitability, as per data from on-chain analytics.

Key Takeaways:

Solana is experiencing a “full liquidity reset,” characterized by realized losses exceeding profits and decreasing liquidity levels.
Although liquidity is diminishing, outflows from exchanges and stable ETF inflows are providing essential support.
Analysts anticipate a possible recovery by early January, yet volatility is expected to remain high in the near term.

According to Glassnode's latest analysis, Solana's average realized profit-to-loss ratio over 30 days has been below 1 since mid-November. This statistic is commonly associated with bear market conditions.

A ratio under 1 indicates that traders are realizing losses more frequently than profits, which suggests a decline in market sentiment and a contraction in liquidity.

Solana in a “Full Liquidity Reset”

On-chain research firm Altcoin Vector has defined the current situation as a “full liquidity reset,” a scenario that has historically signaled the start of new liquidity cycles and the approach of market bottoms.

If the current pattern resembles that of April, analysts project that liquidity may start to recover in about four weeks, with early January being a target for renewed market activity.

Despite these challenges, Solana still has some support. Ongoing withdrawals from centralized exchanges are steadily decreasing the available supply, while demand from ETF investors continues to grow.

This week alone, spot Solana ETFs reported $17.72 million in net inflows, closely resembling last week’s amount of $20.30 million, according to SoSoValue.

However, the overall market remains vulnerable. High leverage levels across the cryptocurrency space have intensified volatility, with CoinGlass reporting $432 million in liquidations over the last 24 hours.

Of this amount, Solana accounted for $15.6 million, making it the third most liquidated asset after Bitcoin and Ethereum, with the token showing a 3.2% increase on that day, based on CoinGecko data.

Analysts maintain a slightly positive outlook for Solana in the mid- to long-term, particularly if macroeconomic uncertainties diminish and liquidity steadily returns to the market.

Nonetheless, in the short term, declining profitability, thinning liquidity, and substantial leverage contribute to the asset's susceptibility to sharp price movements.

Pye Finance recently announced a $5 million seed funding round led by major players in the industry, seeking to convert billions in locked SOL stakes into an active yield market.

Led by Variant and Coinbase Ventures, this round also attracted participation from Solana Labs, Nascent, Gemini, among others, according to their press release.

Pye Finance is working on building bond markets for validators and stakers in the Solana ecosystem. The platform allows validators to draw and retain their stake while providing rewards across a network of more than a thousand validators.

Federal Reserve Liquidity Boost Could Propel Bitcoin Higher

In other news, Bitcoin's recent rise above $92,000 has ignited fresh optimism among market analysts, who believe that this week’s Federal Reserve meeting could set off an even larger rally.

Experts at the London Crypto Club suggest that a liquidity boost from the Federal Reserve on Wednesday could serve as a significant catalyst, potentially causing Bitcoin, the world's largest cryptocurrency, to rise sharply.

In their latest report, analysts David Brickell and Chris Mills predict that the central bank is likely to deliver a “dovish surprise,” speculating that policymakers will introduce liquidity through an innovative bond-buying mechanism, rather than through traditional quantitative easing.

“We are entering a sustained rate-cutting cycle alongside balance sheet expansion, as the Fed begins to effectively activate the money printers to finance the deficit,” they noted.

Additionally, a critical on-chain metric known as "liveliness" is on the rise, even as Bitcoin’s price movement remains relatively muted.

Analysts interpret this divergence as a sign of renewed underlying demand, noting that dormant coins are moving at levels not seen in years—a potential indicator that long-term holders are re-engaging with the market.

Last week, Bitfinex reported that the market is beginning to reflect "seller exhaustion," following a phase of heavy deleveraging and exits by panic-driven short-term holders.