For a significant period, Solana’s value has been closely associated with Sam Bankman-Fried, the founder of the now-insolvent crypto exchange FTX and hedge fund Alameda Research. As an early investor in Solana, he invested in various projects within the Solana ecosystem during the 2020-2021 bull run. However, when FTX collapsed in late 2022, Solana and other “Sam coins” experienced a significant drop in value, with Solana plummeting to a low of $9.89, marking a 96.3% decrease from its peak at $259.96. Since the beginning of 2023, Solana’s price has shown signs of recovery, gaining 175% and reaching a peak of $27.37 as the ecosystem continued to grow. However, recent events, including the sale of FTX’s digital assets and derivatives market positioning, have put pressure on Solana’s price.
The Delaware Bankruptcy Court’s approval of the sale of FTX’s digital assets, which include 55.75 million SOL worth $1.062 billion, has resulted in significant selling pressure on Solana. The announcement led to a weekly low of $17.96 for SOL. However, despite the selling pressure, there are factors that suggest a potential counter move to the upside. The majority of FTX’s SOL stake is vested from 2025 to 2027, indicating that the selling pressure may be overblown. Additionally, the unlock schedule of FTX’s holdings and derivatives market positioning could contribute to a surge in Solana’s price.
The Solana Foundation released an update on FTX’s Solana holdings, revealing that a portion of the SOL tokens held by the defunct exchange are locked until 2027. More than 33 million SOL tokens, representing over 60% of FTX’s holdings, are yet to be unlocked and sold in the market. To limit the selling pressure, FTX has imposed a cap of $50 million for the first week and $100 million for subsequent weeks, with the option to raise the limit to $200 million with court approval. Assuming all SOL tokens are sold, it would take approximately 10 to 12 weeks to unload the total holdings, distributing the selling pressure over time.
The derivatives market has also played a role in Solana’s price volatility. With the announcement of FTX’s digital asset sale, derivatives traders entered short orders, potentially triggering a counter move to the upside. The negative funding rate for perpetual swap contracts on crypto exchanges indicates a crowding of short orders, with a funding rate of -21.1% per annum on September 13. Perpetual swaps, without expiration dates, provide insight into the demand for long and short orders. The increased open interest volumes for SOL, coupled with the bearish inclination of traders, suggest the possibility of a short squeeze.
A short squeeze occurs when short traders are forced to buy back an asset at a higher price to close their short positions as the asset price rises. While negative funding rates have historically resulted in flat price returns, there is a possibility of a price surge that could scare away shorts and neutralize funding rates. Retail shorts have stacked up to the $30 liquidation level, potentially leading to a market maker squeeze. The liquidation heatmap indicates a significant number of leveraged positions on both sides of the current SOL price, concentrated at $20.50 and $17.06.
From a technical standpoint, SOL has faced resistance from a descending trendline since July. It is currently trading below its 50-day and 200-day moving averages, which could act as resistance levels at $21.08 and $22.09, respectively. These technical indicators may influence the future price movement of Solana.
The selling pressure resulting from FTX’s digital asset sale and derivatives market positioning has impacted Solana’s price. However, factors such as the lock-up schedule of FTX’s holdings and the potential for a short squeeze indicate that a counter move to the upside is possible. The gradual release of SOL tokens and the possibility of shorts being squeezed may contribute to Solana’s price volatility. Traders and investors should closely monitor these events and consider the technical analysis in order to make informed decisions in this evolving landscape.