Solana Futures Rises, But Liquidity Index Declines; What’s Next?

Investors hold long positions on SOL tokens, which may lead to a long squeeze. Futures’ open interest for SOL is mostly from leveraged bullish bets. Bets on SOL futures have reached a record high of $1.7 billion in the past week.

The dollar value of unsettled futures contracts, also known as notional open interest, has increased by over $700 million since February’s start to $1.7 billion, with $400 million added since February 8th. That surpasses the previous record of $1.4 billion set in late December during the meme coin-led rally.

Coinalyze’s data shows that over 63% of positions are long or betting on higher prices, translating to over $1 billion in bullish futures bets.

The increase in open interest signifies fresh money entering the market alongside the price rally. However, leverage can amplify gains and losses and introduce instability into the market, sometimes causing any token’s sudden and swift movement.

Due to the current bias towards long positions, investors holding long positions may feel compelled to sell during a bear market to limit their losses, leading to a liquidation cascade. A similar scenario occurred in late December, peaking at $1.37 billion before a drop from $120 to $83, a 30% decline at the time.

BTC and ETH Overtake Solana (SOL) in the Liquidity Index

SOL, the native coin of the Solana blockchain, has been a top performer in the last year, reaching new highs in late December before a brief pause in the rally. Today, it hit new highs of $118.48. 

Kaiko, an on-chain research provider, recently analyzed SOL’s liquidity index and found that it is lagging behind BTC and ETH. According to Kaiko, SOL has a lower market depth-to-volume ratio on centralized exchanges than BTC and ETH, which is the market’s ability to support large market orders without significantly impacting the asset’s price.

Analysts Suggest Potential SOL Bullish Breakout

SOL has surpassed the $100 threshold and is currently experiencing bullish momentum. The trend may encounter initial resistance at the recent high price of $125.

Resistance zones may exist within the $130 to $140 range when considering previous peak and bottom levels.

If the trend sustains, $160 becomes a crucial point in the long-term outlook, corresponding to Fib 0.618. On the downside, the nearest support level for SOL is currently at $110, with the $100 mark being a key point of interest in a potential retreat.

If the $100 threshold is breached, sellers may push SOL towards the 3-month EMA level at $85. To continue the trend, SOL must gather momentum within the $125 – $130 range, which holds significant importance.

Summary

The value of unsettled futures contracts has increased by over $700 million since February, which signifies fresh money entering the market. However, leverage can introduce instability. SOL’s liquidity index lags behind BTC and ETH, and if the $100 threshold is breached, sellers may push SOL towards the 3-month EMA level at $85. To continue the trend, SOL must gather momentum within the $125 – $130 range.

Disclaimer

The views and opinions stated by the author, or any people named in this article, are for informational purposes only. They do not establish financial, investment, or other advice. Investing in or trading in stocks, cryptos or related indexes comes with a risk of financial loss.

Anurag is working as a fundamental writer for The Coin Republic since 2021. He likes to exercise his curious muscles and research deep into a topic. Though he covers various aspects of the crypto industry, he is quite passionate about the Web3, NFTs, Gaming, and Metaverse, and envisions them as the future of the (digital) economy. A reader & writer at heart, he calls himself an “average guitar player” and a fun footballer.