SOL Price Stalls at $140 as Altcoin ETFs Transform Crypto Demand

SOL price capped at $140 as altcoin ETF rivals reshape crypto demand

The recent performance of Solana's SOL token has been overshadowed by falling trading volumes and rising competition from new spot ETFs focused on rival altcoins. These developments have left investors cautious as they assess the market amid macroeconomic uncertainty and changing consumer sentiment.

Key Takeaways:

Market Conditions: Declining volumes on decentralized exchanges (DEX), limited inflows into exchange-traded products (ETPs), and macroeconomic uncertainty are weighing on SOL prices and investor sentiment.
Increased Competition: The introduction of new spot ETFs for competing altcoins could further challenge Solana's market position, although potential government stimulus may boost demand for the SOL token.

Solana's native token, SOL, experienced a 6% drop after hitting a resistance level at $147 last Thursday. Investors have turned risk-averse in light of disappointing job market data from the U.S. and soft consumer sentiment. As a result, traders are wary that it may take longer for SOL to rebound to the $200 level. Notably, many leveraged traders faced significant losses in October and November, while overall activity on the Solana network continues to wane.

Total Value Locked on Solana (left) vs. 7-day DEX volumes, USD. Source: DefiLlama

The total value locked (TVL) in Solana has dropped to $10.8 billion, down from $13.3 billion just two months ago. Many prominent projects within the Solana ecosystem, such as Kamino, Jupiter, Jito, and Drift, have reported declines in deposits of 20% or more. Additionally, trading activity on Solana's decentralized exchanges has plummeted sharply.

Despite this, Solana remains the second-largest network by TVL, trailing Ethereum, which has $73.2 billion in deposits. Ethereum's layer-2 ecosystem, which includes Base, Arbitrum, and Polygon, continues to lure significant capital. Furthermore, the recent Fusaka upgrade to Ethereum has enhanced scalability and wallet management, which may reduce the incentive for users to transfer their funds to competing networks like Solana.

In the week ending November 30, Solana DEX trading volumes plummeted to $19.2 billion, a 40% drop from the $32 billion recorded a month earlier. This reduction in on-chain activity has raised concerns about weaker demand for SOL, leading to a feedback loop where traders may exit the Solana ecosystem in search of better opportunities. For instance, the newly launched layer-1 blockchain, Monad, achieved $1.2 billion in DEX volumes within its first week.

Job Cuts and Stressed Consumer Credit Impact SOL Sentiment

The sentiment surrounding SOL has also been affected by a report from the global outplacement firm Challenger, Gray & Christmas, which highlighted 71,321 corporate layoffs in November—an occurrence that has only been matched twice since 2008. Further uncertainty looms in the consumer financing sector, particularly as multiple U.S. State Attorneys General have requested information from "Buy Now, Pay Later" providers regarding consumers' loan repayment capabilities.

A recent PayPal survey revealed that half of consumers plan to seek personal loans during the holiday season, raising alarm about tightening credit circumstances.

SOL perpetual futures annualized funding rate. Source: laevitas.ch

The demand for bullish leverage in SOL futures has notably declined, with the annualized funding rate at just 4%, well below the neutral 6% level. This lack of confidence is partly due to diminished inflows into Solana's ETPs. A CoinShares report from December 1 indicated that Bitcoin, Ethereum, and XRP ETPs collectively attracted $1.06 billion in inflows during the same period.

Weekly crypto exchange-traded product flows, USD million. Source: CoinShares

In the U.S., several altcoins, such as XRP, Litecoin, and Dogecoin, recently received spot ETF approvals, adding new competition for institutional investment flows. Other Solana competitors are expected to obtain spot ETF approvals in the near future.

The current bearish sentiment has diminished the likelihood of publicly traded companies issuing new shares to expand their SOL reserves. For instance, Forward Industries (FWDI US), which holds 6.91 million SOL, is currently facing trading levels below its original investment value, according to CoinGecko data. Issuing shares at prices indicating a SOL valuation below their reserve level would dilute the claims of existing shareholders on those assets.

The journey for SOL to return to the $200 mark hinges significantly on easing macroeconomic uncertainties. However, SOL bears could be caught off guard if traders anticipate that government stimulus measures are forthcoming, potentially serving as the catalyst for a broader rally in the altcoin market.