- SOL price has dropped significantly from its recent highs as traders take profits after a 100%+ rally in December. Key indicators like daily RSI being overbought and large SOL deposits to exchanges signaled selling pressure.
- The decline coincides with gains in rival Ethereum (ETH), suggesting capital rotation from SOL into ETH. The SOL/ETH pair plunged nearly 24% amidst ETH’s 12% gain.
- Falling total value locked (TVL) in Solana’s DeFi ecosystem is also contributing to sell-side pressure on SOL. Technical analysis suggests more downside is possible if key support levels are broken.
Solana (SOL) has seen a major price drop-in recent day. After rallying over 100% in December, SOL has pulled back significantly from its recent highs. This article explores the key factors causing Solana’s price decline.
What’s Behind the Solana Sell-Off
SOL’s price fell to $101.50 on December 28th, just three days after reaching $126.50, its highest level since April 2022. It’s clear that traders have started taking profits after Solana’s latest rally. One indicator of this is SOL’s daily relative strength index (RSI) crossing above 70 (overbought) earlier in December.
Additionally, some of Solana’s biggest investors have recently started selling their SOL holdings. On December 28th, around Solana’s 5% daily drop, someone deposited 303,756 SOL (worth $328 million) to Binance, likely adding to sell-side pressure.
Rotating Into Ethereum
Solana’s price drop coincides with gains in Ethereum (ETH), its top layer-1 blockchain rival. Notably, ETH has climbed 12.35% to around $2,450 during SOL’s pullback. As a result, the SOL/ETH pair has plunged 23.75% this week, suggesting capital is rotating from SOL into ETH.
Declining Total Value Locked
SOL’s December 28th drop follows declining total value locked (TVL) in Solana’s DeFi ecosystem. Solana’s TVL has dropped by $2 million SOL ($200 million) since December 20th. Less SOL locked in dapps means more supply elsewhere, which can also drive sell pressure.
Technical Analysis and Outlook
SOL/USD is overbought even on larger timeframes, suggesting the potential for more downside or consolidation in January. The bears will aim to close below $100, opening the door for support at $68.50. Meanwhile, bulls are targeting a weekly close above $130 to propel SOL to $150.
Overall, Solana’s price is retreating as investors take profits and rotate into Ethereum. Lower DeFi activity is also contributing to selling pressure. The charts suggest further downside is possible in the short term, but Solana could see a bullish start to 2023 if key support levels hold.
