Solana's recent rally to $161 was triggered by the announcement of a new Solana-based ETF with staking capabilities.
Despite the initial hype, institutional demand for Solana remains low.
Some more headwinds for Solana include around $585 million worth of SOL tokens scheduled for unlocking over the next two months.
Solana continues to lag behind Ethereum in attracting DApp developers.
If the bulls are unable to hold the fort, Solana could crash down towards $130.
Solana briefly soared to $161 soon after the announcement of a new exchange-traded fund (ETF) that includes staking capabilities.
While the news was an initial source of optimism among traders and analysts, a closer look into Solana’s current market dynamics shows that this rally could be a shaky one.
From network activity to institutional interest, several indicators show that the road ahead for SOL may still be a rough one.
The excitement started when REX Shares and Osprey Funds announced plans to launch the first-ever Solana ETF with staking features.
Unlike traditional ETFs for Bitcoin and Ethereum that go through the SEC approval process, this Solana ETF is structured as a taxable C-corporation.
The REX ETF announcement | Source: Twitter
This means that while it may not be very tax efficient, this ETF is likely to feature a faster launch.
Solana quickly rallied by around 7% on the back of this news, to as high of $161 before settling around $157.
The short-term optimism was rooted in hopes that the ETF would increase institutional demand and push the price toward $200.
Despite the ETF buzz, the market quickly sobered up.
Analysts pointed out that similar ETF structures could easily be replicated for other altcoins, which means that Solana doesn’t have much of a first-mover advantage.
More interestingly, Grayscale’s Solana Trust (GSOL), which has been trading for over two years, currently manages only $75 million in assets.
For context, Grayscale’s Ethereum Trust (ETHE) held $10 billion in assets one month before the Ethereum spot ETF launched in July of last year.
This difference shows that institutional investors are not yet fully convinced about Solana's long-term value, even with the staking feature being enabled.
Even if institutional demand increases over time, Solana still has major headwinds to contend with, in terms of staking unlocks and ongoing sell-offs.
According to data from commentators, around $585 million worth of SOL is set to be unlocked from staking over the next two months.
These tokens are likely to flood the market and apply downward pressure on the price once they become liquid.
In addition, despite temporary interest driven by memecoin activity, Solana’s network revenue has plunged over 90% since January.
Billions in Solana unlocks incoming |
Finally, while trading volume briefly surged after the ETF announcement, Solana is still lagging behind Ethereum in attracting dapp developers.
For instance, Robinhood chose an Ethereum layer-2 network to launch its tokenized stock trading.
In the same vein, Coinbase opted to integrate on-chain payments with Shopify through Ethereum’s Base network, not Solana.
These developments show that while Solana offers the best and fastest transactions, its adoption rate is still suffering.
Technically speaking, Solana’s chart also does not look very bullish at the moment.
For example, the daily charts show that Solana is currently trapped within a descending channel.
There is some resistance near $179.95, and if SOL fails to break above this level, the more probable outcome is a pullback toward $138.75 or even lower.
Solana in a descending channel | Source: TradingView
Things are even worse on the 4-hour chart, because the EMA indicators are on the verge of a bearish crossover.
The 26 EMA threatened to dip below the 12 EMA, alongside the price forming a rising wedge.
In essence if these bearish patterns play out, SOL could revisit the $136 support level or even continue downwards towards $126.
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