SOL Price Declines Amid Growing Concerns Over Network Activity

Solana (SOL) is one of the worst-performing cryptocurrencies in the past 24 hours, dropping by 6.80% to $180.80 on 17 February. This decline comes as the broader crypto market experiences losses of 1.72%, with various factors contributing to Solana’s underperformance.

Key reasons behind SOL’s price drop include its association with high-profile rug-pull scams, a sharp decline in on-chain transactions and decentralised exchange (DEX) volumes, and a bearish technical pattern that suggests further losses ahead.

Solana Linked to Rug-Pull Scandals

While macroeconomic factors like profit-taking could contribute to SOL’s recent decline, increasing concerns about on-chain manipulation are also a significant factor.

A recent investigation by Bubblemaps revealed that the team behind Libra (LIBRA), a rug-pull scam associated with Argentine President Javier Milei, is also linked to Melania (MELANIA), a memecoin promoted by US First Lady Melania Trump.

Further findings indicate:

• A Solana wallet labelled “0xcEA” played a crucial role in both token launches.
• Millions in profits were generated through manipulative tactics.
• Funds were moved across multiple Solana wallets before being transferred cross-chain.
• The same wallet was also linked to other pump-and-dump schemes, including a fake Robinhood (HOOD) token.

These negative headlines continue to erode investor confidence, further weighing down SOL’s price.

Memecoin Frenzy Backfiring on Solana

Crypto analyst Benjamin Cowen highlights that Solana has been underperforming against Bitcoin (BTC) since the launch of Pump.fun, a memecoin launchpad, in January 2024.

• Pump.fun made it easier and cheaper to launch memecoins on Solana, leading to a surge in speculative tokens.
• Many of these tokens turned out to be scams or rug-pulls, raising concerns about the integrity of the Solana ecosystem.
• Speculative traders who profited from Pump.fun may now be cashing out, putting downward pressure on SOL’s price.

Solana is also losing ground against Ethereum (ETH), with the SOL/ETH trading pair dropping over 28% since its peak on 3 February and down 5% in the last 24 hours.

Declining On-Chain Activity Hurts SOL Demand

Another key factor contributing to Solana’s bearish outlook is the drop in on-chain activity within its ecosystem.

• The number of daily transactions on the Solana blockchain has plummeted from an all-time high of 71,738 on 23 January to just 9,303 on 17 February.
• Trading volume on Solana’s decentralised exchanges has seen a significant decline since peaking in December 2024.

These trends suggest reduced user engagement and weaker demand for SOL, further pressuring its price.

Solana’s Funding Rates Turn Negative

Despite Solana’s price drop, open interest (OI) in SOL futures contracts has been rising, suggesting an influx of traders taking short positions.

• OI has increased from $5.31 billion to $5.88 billion daily, indicating growing market participation.
• However, SOL’s weekly funding rate turned negative, dropping from 0.071% to -0.27% on 17 February.
• Negative funding rates indicate that short sellers are paying long holders to maintain their positions, signalling strong bearish sentiment.

This suggests that traders are betting on further declines for SOL in the near term.

Solana Faces Risk of a 40% Price Drop

Technical analysis indicates that Solana’s recent price drop could be part of a broader head-and-shoulders (H&S) reversal pattern, which typically signals further losses ahead.

• The H&S pattern consists of three peaks: a higher central peak (head) flanked by two lower peaks (shoulders), with a common support level (neckline).
• As of 17 February, SOL appears to be forming the pattern’s right shoulder, eyeing a breakdown toward the neckline support at $180.50.
• A decisive drop below this level could trigger further declines, with a potential target of $110, representing a 40% fall from current prices.

However, if SOL holds above the neckline, a recovery toward the recent high of $215 could occur, invalidating the bearish outlook.

As Solana continues to face scrutiny over security concerns and network manipulation, investors will be watching closely to see whether the cryptocurrency can regain momentum or if further losses are on the horizon.