Derivatives data suggests Solana has peaked in the near term
Solana (SOL) hit an all-time high of $ 216 on September 9 after rising 508% since August. The bull run has led some analysts to project a target of $ 500 which would translate into a market cap of $ 150 billion.
It should be noted that by the SOL rally, the Ethereum network’s average transaction fees had exceeded $ 40. Growing interest in the NFT market has accelerated investors’ transition to Solana, which was spurred by the launch of FTX’s NFT market on September 6.
The graph above shows the performance of SOL over two months compared to Avalanche (AVAX) and Cosmos (ATOM). Both are fighting for the same user base of decentralized applications and offer faster and cheaper transactions compared to Ethereum (ETH).
Major industry players have also invested in Solana’s ecosystem due to its potential against Ethereum. In June, Andreessen Horowitz and Polychain Capital led a $ 314 million fundraiser in Solana Labs, which was also funded by venture capital firm Andreessen Horowitz, Polychain Capital and Alameda Research.
Does the Solana outage weigh on the price of SOL?
At SALT 2021, Solana founder and CEO Anatoly Yakovenko told Cointelegraph that the network “is optimized for a specific use case: the central online limited order book, a trading method used by exchanges which matches offers with offers. It was designed for market makers who need to submit millions of transactions per day. “
Yakovenko then added, “There are tradeoffs in Pareto efficiency. If I optimize hash power security, it means I can’t have a lot of TPS. You have to choose one or the other. . ”
Curiously, on September 14, the Solana network experienced an outage that lasted more than 12 hours. The team explained that a sharp increase in transaction load to 400,000 per second overwhelmed the network, creating a denial of service that caused validators to start branching off.
Despite the recent setback, the cumulative open interest in Solana’s futures markets stands at $ 1 billion, an increase of 640% in two months. This figure makes Solana’s derivatives market the third largest, behind Bitcoin (BTC) and Ether. This data confirms investor interest, but it cannot be considered bullish because futures buyers (long) and sellers (shorts) are paired at all times.
Derivatives markets point to a balanced situation
To answer this question, we must analyze the financing rate. Perpetual contracts, also known as reverse swaps, have a built-in rate that is typically billed every eight hours. This commission guarantees that there is no imbalance in the exchange risk. A positive finance rate indicates that the longs (buyers) are the ones asking for more leverage.
However, the reverse situation occurs when shorts (sellers) require additional leverage, causing the finance rate to turn negative.
As pictured above, the eight-hour charge peaked at 0.12% on September 5, which equates to 2.5% per week. This momentary spike was quickly triggered as SOL faced extreme volatility on September 7th. After peaking at $ 195, the SOL price collapsed 35% in 9 hours and liquidated the leveraged positions, leading to the current balance between long and short positions.
The data shows no evidence that investors are rushing to add leveraged long positions despite the current open interest of $ 1 billion. Additionally, given the 410% gain over the past two months, traders have reason to fear a further decline as Bitcoin has also not broken the psychological barrier of $ 50,000 and it remains to be confirmed whether the recent drop of less than $ 40,000 was the near-term low. .
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade move involves risk. You should do your own research before making a decision.