Solana Price Volatility Rises, Derivatives Demand Briefly Surpasses ETH

Solana (SOL) has recently been underperforming compared to Bitcoin and Ethereum in terms of bullish activity.

This performance underscored lower interest compared to its bigger siblings but that might be changing.

SOL price recently demonstrated a volatility surge this week which was characterized by a rally back above $200 and as high as $209 on Thursday.

The double-edged volatility also played out in its retracement by over 20% to $187 just 2 days later.

Recent data revealed that the volatile nature of the cryptocurrency in the last 2 days may have been heavily influenced by rising derivatives activity.

Solana even managed to outperform Ethereum in perpetual futures trading volume during the last 24 hours.

The rising derivatives activity on Solana was noteworthy because Solana activity was previously subdued. Especially compared to the attention that previously favoured the Ethereum network.

This resurgence around Solana derivatives could signal that the market’s attention was increasing its focus on Solana.

A potential sign of liquidity rotation as altcoin season proliferates. There were a few other developments that validated the observation.

Solana DEX Volume Swells, Reflecting Network Activity

Solana DEX volume was relatively subdued in the first week of August. For reference, its highest daily volume was just over $4 billion on 1 August.

The bottom range for the week clocking in at $2 billion. The second thing was where things have been happening. Solana DEX volume surged as high as $7 billion on Thursday.

SOL also experienced a slight surge in market dominance according to Lunarcrush. Its market dominance surged from 2.37% on Tuesday to 2.69% on Thursday.

Interestingly, this duration was also characterized by spikes in DEX volume and perps volume. It was worth noting that the market dominance cooled down slightly since then.

These observations coincided with the spike in prices observed during the week. SOL price has maintained an overall uptrend since the start of August.

However, most of those gains occurred during the last 2 days, during which the price surged by 19% from its low on Tuesday to the weekly high on Thursday.

Interestingly, the price retraced just as sharply as it rallied. This was largely due to the high level of derivatives demand. However, derivatives rallying also meant there were traps along the way.

SOL Liquidations Surge While Spot Inflows Remain Weak

The SOL price was also fueled by a massive spike in funding rates, which surged to a six-month high on Thursday.

Trading volumes also surged to a 6-month high, but a wave of liquidations also accompanied them. Long liquidations surged above $55 million, which was the second-highest in the last 2 weeks.

Meanwhile, short liquidations on the same day amounted to $17 million.

The liquidations confirmed a short-term focus but this may have been linked to weak demand in the spot segment.

SOL experienced $256 million worth of spot outflows in the last 3 days. This also contributed heavily to the sharp retracement and limited upside.

In summary, the retracement occurred because there was significant sell pressure in the spot market in what might have been a hunt for leveraged positions. 

This may also indicate that SOL was not yet ready to make a big move. Nevertheless, the fact that it still made a significant move was clear evidence that SOL was on investors’ radar.

This means SOL could be on track to receive heavy liquidity injection if altcoin season intensifies.