SOL Price Action Trails Behind Altcoin Market: Is Solana’s Glory Coming to an End?

SOL Price Action Trails Behind Altcoin Market: Is Solana’s Glory Coming to an End?

Summary: Solana’s native token (SOL) has significantly underperformed compared to the broader altcoin market. With a 32% decline since November, Solana faces mounting concerns over its network demand, driven by reduced transaction fees and dwindling decentralized application revenues. The focus of growth seems to be shifting to competing platforms, presenting challenges for Solana’s future price recovery.

Key Takeaways:

SOL has experienced a 32% drop since November, while the altcoin market decreased by 21%.
Decreasing fees and DApp revenues indicate weakening demand for Solana’s network.
Growth in usage has moved towards Base, Arbitrum, Polygon, and BNB Chain, leaving SOL’s prospects for a rebound uncertain.

Solana's token, SOL, has declined by 32% since November, which is notably worse than the broader altcoin market's 21% drop. This disparity raises alarms among investors, especially in light of increased inflows into SOL exchange-traded funds (ETFs) and a growing number of companies choosing to include SOL in their reserve strategies.

What’s Needed for SOL's Recovery? Traders are increasingly questioning what factors must change for SOL to regain a sustained bullish trend.

SOL/USD (blue) vs. Total Crypto Capitalization (red). Source: TradingView

Since the introduction of the REX-Osprey SOL+Staking ETF in July, the Solana ETF sector in the U.S. has gathered $636 million in assets. In addition, companies like Forward Industries (FORD US), Solana Company (HSDT US), and Sharps Technology (STSS US) have added a combined total of 20.35 million SOL to their assets, worth over $2.5 billion.

The native staking functionality on Solana has also helped to limit the immediate availability of SOL for sale. Currently, nearly 68% of the circulating supply is delegated to the network’s proof-of-stake system, a percentage that has been steadily rising in recent months. Staking yields for SOL can surpass 6%, even as SOL remains inflationary to cover validator operating costs.

Native Staked SOL on Solana Network. Source: StakingRewards

The total amount of staked SOL increased to 418 million from 410 million in the two months preceding this report, a continuation of a trend that has persisted since March. Consequently, SOL's return towards the $120 level is closely linked to softer expectations regarding Solana's network demand. Notably, broader trends in crypto adoption seem to lean toward competing platforms or alternative solutions that do not rely on direct blockchain transactions.

Solana Network Weekly Chain Fees vs. DApps Revenue, USD. Source: DefiLlama

Since August, Solana's on-chain activity has consistently declined, with weekly network fees dropping from $7 million to $4.5 million. Simultaneously, decentralized applications (DApps) on Solana saw a 30% decrease in revenue, falling to $26 million per week. This decline in Solana's utility occurs as other networks experience heightened activity.

Competition from Other Blockchain Networks Intensifies

Top Blockchains Ranked by 30-Day Fees. Source: Nansen

In terms of monthly transaction counts, Solana showed minimal growth at just 4%, compared to Ethereum's 6% increase. In contrast, Blockchains like Base experienced a 34% surge, Arbitrum grew by 21%, and Polygon's activity skyrocketed by 89%. Even Tron, which competes directly with Solana, recorded a 13% rise in transactions over the past 30 days. Furthermore, the Ethereum layer-2 ecosystem has continued to grow, providing low fees and surpassing Solana’s total value locked (TVL) of $8.5 billion.

SOL investors are now showing increased caution, particularly due to the successes of DApps on the BNB Chain, like Aster decentralized exchange and Four-meme, a platform for launching meme coins. The backing from Binance, the largest cryptocurrency exchange, gives these projects enhanced access to developers, marketing resources, and a substantial user base. Additionally, Binance's recent moves into prediction markets may further challenge SOL's bullish outlook.

Without a definitive reversal in Solana's on-chain activity, it is doubtful that SOL will close the performance gap with the wider altcoin market. Whether the competition arises from other blockchain networks or from traditional financial technology companies, such as Nasdaq's plans for 23-hour trading, the potential for sustained bullish momentum for SOL remains uncertain.