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Solana's (SOL) price has recently experienced a notable decline, closing multiple daily candles below the 200-day exponential moving average (EMA) for the first time since September 2023. As of late August 2024, SOL recorded its second-largest weekly decline of the year, with a drop of 19.14%. This follows a larger weekly decrease of 25.19% observed in July.
During August, {Solana} (SOL) saw a negative net flow of $500 million in spot markets, shifting the market focus towards derivatives. Despite an initial 12% reduction in open interest (OI) after SOL's price fell below $150, OI has subsequently increased by 20%. This rise in OI amidst declining prices suggests a rise in aggressive short-selling activity by futures traders. The negative funding rate, which has been sustained for a week and is currently at its lowest of the year at -0.001, further underscores a bearish sentiment in the market.
On-chain data reveals that Solana’s decentralized exchange (DEX) volume has dropped to a six-month low of $7.7 billion. This decline in activity follows a period of high enthusiasm around memecoins and represents a significant decrease from earlier in the year when daily DEX volumes frequently surpassed $3 billion.
The SOL/BTC trading pair has shown increased correlation in 2024, with Solana generally experiencing more substantial drawdowns compared to Bitcoin. An independent trader, Bluntz_Capital, has highlighted a potential for further declines in the SOL/BTC pair.
Solana’s price is currently facing a critical support level around $127. Since April 2024, SOL has briefly fallen below $120 on multiple occasions but has managed to close daily candles above $127, which marks the lower boundary of its accumulation zone. The recent loss of support from the 200-day EMA adds to the bearish outlook.
If SOL fails to maintain the $127 level, the next significant support is around $110, with a possible liquidity sweep scenario. A recovery from $110 would be favorable for bulls. However, a prolonged bearish trend in September could lead SOL to test the demand zone between $98 and $104. The most severe scenario would involve a retest of $100, representing a 22% decline and a new lower low for Solana. A potential bullish turn in Bitcoin’s performance during Q4 could influence Solana to maintain levels above $100.
