Solana Faces Losses Amid Declining Onchain Activity and Scam Concerns

Solana (SOL) has emerged as one of the worst-performing cryptocurrencies over the last 24 hours, with its price dropping by 6.80% to $180.80 on 17 February. This decline outpaces the broader crypto market’s overall loss of 1.72%.

Several factors are contributing to SOL’s downward trend, including its association with multiple rug pull scams, diminishing onchain activity, and a looming bearish reversal pattern that could push prices even lower.

Solana’s Connection to Rug Pull Scams

While macroeconomic factors like profit-taking may be playing a role in SOL’s decline, increasing concerns over network manipulation are also weighing on investor sentiment.

A recent investigation by Bubblemaps has revealed troubling links between Solana-based scams:

• The team behind the Libra (LIBRA) rug pull, associated with Argentine President Javier Milei, was also responsible for the Melania (MELANIA) memecoin promoted by US First Lady Melania Trump.
• A key Solana wallet, labelled “0xcEA,” was involved in both launches.
• The scheme reportedly generated millions in profits using manipulative tactics.
• Funds were transferred across multiple Solana wallets before being moved crosschain.
• The same wallet has been linked to other high-profile “pump and dump” tokens, including a fake Robinhood (HOOD) token.

These scandals have further damaged Solana’s reputation, potentially accelerating SOL’s price decline.

Memecoin Craze Backfiring on Solana

Crypto analyst Benjamin Cowen has pointed to Solana’s underperformance relative to 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, triggering a flood of speculative, low-quality tokens.
• Many of these tokens turned out to be scams or rug pulls, reinforcing fears that pump-and-dump schemes are dominating Solana’s ecosystem.
• If speculative traders have cashed out their profits, it may have left SOL vulnerable to continued price corrections.

Additionally, Solana is weakening against its main competitor, Ethereum (ETH), with the SOL/ETH pair down over 28% since its peak on 3 February and 5% in the last 24 hours.

Declining Onchain Activity Signals Weaker SOL Demand

Solana’s bearish outlook is further reinforced by a drop in onchain 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 as of 17 February.
• Trading volumes on Solana-based decentralised exchanges (DEXs) have also seen a sharp decline.

This downturn in user engagement suggests reduced demand for SOL, which is negatively impacting its price.

Solana Futures Indicate Growing Short Positions

While Solana’s Open Interest (OI) in futures trading is increasing, its funding rates have turned negative, signalling bearish sentiment.

• Solana’s OI rose from $5.31 billion to $5.88 billion in a day, indicating more traders are entering positions.
• However, SOL’s weekly funding rate dropped to -0.27% on 17 February, down from 0.071% the previous day.
• Negative funding means short sellers are paying long traders to maintain their positions, suggesting growing bearish bets against SOL.

Could Solana Drop Another 40%?

Solana’s recent price movements align with a bearish head-and-shoulders (H&S) pattern, which could indicate further downside.

• 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).
• If SOL decisively breaks below the neckline support at around $180.50, it could trigger a sharp decline toward the H&S target of $110—a 40% drop from current levels.
• However, if SOL holds above this key support, it may recover towards the local high of $215, invalidating the bearish pattern.

With onchain activity weakening and negative market sentiment growing, Solana faces significant risks ahead. Investors will be watching closely to see if SOL can maintain its key support levels or if further declines are imminent.