Causes Behind the Recent Crash

It’s essential to understand why Solana has experienced such a sharp drop in value since reaching nearly $250 in 2021. One key factor is the series of network outages that have occurred recently. Developers have pointed to resource depletion, which led to a denial of service, as the cause of these disruptions. Yet, how could this happen in a supposedly decentralized network? Interestingly, research has shown that the top five data centers supporting the network control almost half of all nodes (1), which raises concerns about the true decentralization of Solana and has understandably made some investors uneasy.

Another significant issue that has surfaced recently is the connection between Solana and FTX. Initially, it was reported that Binance might acquire the struggling FTX exchange. However, after backing out, FTX was left in a state of uncertainty, teetering on the edge of collapse.

The complication arises from the fact that Alameda Research, another trading firm, was closely linked to FTX operations. It turns out that Alameda holds a significant amount of Solana. When FTX CEO Sam Bankman-Fried decided to shut down Alameda, rumors began circulating that Alameda might need to liquidate its SOL holdings to raise liquidity. This fueled fear among investors, leading to another drop in prices.

Observing Implied Volatility and Potential Liquidations

Now that we’ve discussed the causes behind the significant drop, we need to consider implied volatility (a measure of predicted short-term price fluctuations). As of the publication of this article, implied volatility has spiked dramatically. With BTC implied volatility hovering around 95%, it’s clear why traders are hesitant and sitting on the sidelines.

Another factor affecting prices is whether Alameda’s liquidation of SOL is just the beginning of a larger wave of token sales. If this turns out to be the case, further price declines are likely. This leads to an important question: how low can SOL go?

Determining a Strong Support Level

Not all investors are fleeing in panic. Some have entered the market cautiously, buying small positions in hopes of making short-term gains. This is quite different from the situation of long-term holders who have been invested since the highs of 2021. The question of whether Solana will reach a support level that offers an attractive buying opportunity is subjective. However, many investors are closely watching to see if SOL reaches the $10 mark. Why does this level seem so significant?

To understand this, we need to look at price movements in proportion. It’s important to note that Solana experienced a price surge in April 2022, moving from $82 to $132 before the Terra Luna collapse. In other words, even a small upward movement from a low point could result in a short- to medium-term rally.

Clearing Up the Situation

One final point worth mentioning is forced liquidation. While this concept can be unsettling, such events often provide clarity about the true value of an asset. Despite the current volatility, Solana is still built on a solid technical foundation, and its developers are actively pursuing new partnerships. Purchasing NFTs on the Solana network remains a streamlined process, and users benefit from low transaction fees. Although the cryptocurrency is currently facing challenges, its underlying principles remain intact. As a result, the smart strategy might simply be to observe and wait for further developments.