Key takeaways:
- Interest in open SOL futures rose to a two-year high, reflecting growing institutional interest.
- Increasing competition from other blockchains and neutral funding rates continue to undermine SOL’s upward momentum.
Solana SOL (SOL) failed to maintain its bullish momentum after rising 10% from Monday to Thursday. The cryptocurrency showed weakness after testing the $180 level several times in May, but growing interest from traders in leveraged positions could open a path to $200 and beyond.
SOL futures aggregated open interest, SOL. Source: CoinGlass
On Wednesday, total open interest in SOL futures reached SOL 46.2 million, the highest in over two years and an escalate of 22% compared to the previous month. Buyer demand is always met by sellers, but increased activity signals increased participation from institutional investors.
With $7.4 billion in open futures positions, SOL is attracting increasing attention from savvy market participants. This creates more opportunities for arbitrage strategies such as the “carry trade”, where investors buy SOL in the cash market and sell the futures contract. A liquid and vigorous derivatives market supports these transactions.
SOL/USD (green, left) vs. Total cryptocurrency capitalization/USD (blue). Source: TradingView/Cointelegraph
Even with this development, many SOL investors are likely disappointed. The current level of $155 remains well below the all-time high of $294. Meanwhile, the total market capitalization of cryptocurrencies is only 12% below the record. The piercing decline in activity on the Solana network has led investors to lower expectations for SOL’s future earnings, making a return to $200 less likely.
Weekly DEX volumes of the Solana network, USD. source: DefiLlama
Decentralized exchange (DEX) activity on Solana dropped to $10.5 billion per week, down from $29.2 billion just 30 days earlier. Moreover, the peak of 50% DEX market share in early January proved unsustainable, especially as trading volume on BNB Chain increased, and Hyperliquid became the clear leader in the perpetual futures market.
Unlike the Ethereum ecosystem, which comes with more friction due to its reliance on Layer 2 scaling solutions, BNB Chain directly competes with Solana by offering low fees and integrated token launch tools. Its seamless connection to the Binance exchange also gives BNB Chain a distinct advantage in terms of user experience.
SOL financing is neutral because competition erodes investor confidence
To assess whether investors are turning bearish on SOL due to its recent penniless performance and increasing competition, it is worth examining futures funding rates. In a neutral market, financing should be between 5% and 15% per year, which signals that buyers (long positions) are paying a premium to hold their positions.
SOL Perpetual Futures Annual Funding Rate. Source: Laevitas.ch
The SOL funding rate ranged from neutral to slightly bearish, clearly moving away from the negative 7% recorded on Saturday. More importantly, SOL futures have failed to stay above the 15% annual funding threshold over the last 30 days, indicating a lack of forceful bullish sentiment.
Related: DeFi Development will re-fund Solana’s $1 billion plan after filing with the SEC
Speculation around a potential spot Exchange Traded Fund (ETF) for SOL in the United States remains the most essential near-term price catalyst. Bloomberg analysts believe the US Securities and Exchange Commission will approve ETFs for Litecoin (LTC), SOL and XRP by the end of the year.
At this time, there are no clear signs that SOL is on track to reach $200, especially given neutral funding rates in perpetual futures. Additionally, increasing competition among decentralized applications has likely played a major role in dampening investor expectations for SOL.
This article is for general information purposes and is not and should not be treated as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
