Solana (SOL) has experienced a remarkable surge, evident in its daily chart performance. Currently trading above $50, the coin has witnessed a staggering 520% increase in the last year. This surge follows a period when it fell below $8, a decline attributed to the collapse of FTX, a now-defunct crypto exchange, and Alameda Research, a trading wing associated with FTX and a prominent player in the crypto market-making space.
Is Solana’s Rapid Surge Driven by Decreasing Liquidity?
While Solana is achieving new highs in 2023, the crypto analytics platform Kaiko expresses unease about the imbalance in liquidity when comparing USD and the “native unit,” where the term “native unit” typically denotes the base unit of account for a currency, specifically SOL in this case.
Using native units as a metric facilitates the measurement of market depth, offering a more straightforward way to assess the coin’s relative liquidity without the necessity of conversion to other denominations such as USD or BTC.
As of November 14, according to Kaiko, Solana’s liquidity in USD terms is at its peak at a 1% market depth, marking the highest level since the FTX collapse. However, when examining SOL’s liquidity from a different perspective using “native units” as the benchmark, the coin is facing challenges, hitting its lowest point since the FTX collapse.
SOL Continues to Feel the Impact of the FTX Collapse – What Comes Next?
The FTX collapse had significant repercussions not only for SOL and its native tokens but also for the overall cryptocurrency markets. In the aftermath of the Sam Bankman Fried exchange’s bankruptcy in November 2022, SOL prices plummeted, and concerns of contagion led to a decline in Bitcoin (BTC) prices, failing to uphold its perceived role as a safe haven.
By November 2022, Bitcoin had experienced a flash crash below $16,000, and Solana saw a sharp decline from its highs of $220 to as low as $8. This downturn also had a more adverse impact on Solana’s liquidity within the cryptocurrency market.
Examining SOL’s liquidity in its native units reveals that it has yet to fully recover and might require additional time, despite the general optimism within the Solana communities. According to Kaiko, market makers appear to be choosing to maintain stable liquidity for SOL, even amid surging prices in USD terms.
Currently, SOL prices remain stable above $50 but show a rising trend against the USD. On lower time frames, a sequence of lower lows is evident, suggesting early signs that the upward momentum could be waning, potentially leading to SOL traders exiting their long positions. Nevertheless, technical analysts consider $38, representing the highs of November 2022, as a crucial reference point for reactions in the market.