20 June 2024
Andrew Kang, co-founder of Mechanism Capital, voiced concerns over the potential volatility and impending price correction of Solana (SOL) in a market analysis posted on X. His comments come amid a broader dialogue concerning the delayed second wave of US spot Bitcoin ETFs, which he now anticipates could be pushed back by one to two quarters.
He states, “I believe the timeline for this is delayed by 1-2 quarters. Some market views. Experts now suggest that solicitation approval/ETFs added to wealth management platforms is slated for Q4 instead of late May as originally suggested.” He believes that this delay in ETF approvals could result in a lack of immediate capital influx into the market, thereby potentially reversing the current upward momentum.
Impacting the broader crypto market, Kang’s prediction for Solana, Kang’s prognosis is less optimistic. He highlights Solana’s price volatility, which has been significantly influenced by meme-driven trading activities.
“Solana has been a great horse this cycle but it’s seen the reflexivity from the meme trading demand works in both directions. If meme trading takes a pause for the next few months, then you’ll likely be able to buy SOL near $80 again,” he remarked, indicating a potential 41% decline in SOL’s price from its current price level.
Reasons For A Potential Solana Price Crash
Crypto analyst TexasHedge further elaborated on Kang’s insights, providing a nuanced view of the market dynamics that influenced Solana’s price movements. He discussed the historical attractiveness of Solana as a high-risk, high-reward investment, often referred to metaphorically as “the world’s best casino.”
This environment attracted significant capital inflows, which were crucial in driving up Solana’s valuation during its peak periods. “Kang’s SOL commentary makes a lot of sense. Solana remains arguably the best casino in the world, but casino outflows are as painful for the SOL token as inflows were beneficial,” the crypto analyst noted.
TexasHedge shared his previous investment approach, which saw Solana as a compelling trade based on several factors: Initially, it involved the re-rating of Solana, which had been considered a laggard in the crypto space due to the FTX collapse but then gained momentum. Another factor was the strong influx of capital into SOL because of the memecoin frenzy. Lastly, Solana’s movement often mirrored broader crypto market trends, benefiting from the overall market beta.
Reflecting on these factors, TexasHedge remarked, “I liked SOL in October 2023 as a three-part trade: (i) re-rating of a presumed dead chain, (ii) inflows into the world’s best casino, and (iii) crypto beta. Now, you’re largely just left with (iii), at much higher levels, and amid a backdrop in which it is hard to make a great case that SOL is the best expression of crypto beta.”
Moreover, the analyst pointed out several structural challenges that Solana faces, which might contribute to a downward price correction. These include an inherent annual inflation of 5.21%, translating to about 82,570 SOL entering the market each year—worth approximately $11.1 million at current prices—and the regular monthly release of locked SOL purchased from FTX, which increases supply and potentially depresses prices if demand doesn’t match up.
“Even absent a cooling of memecoin mania, the outlook over the next few months is challenging,” TexasHedge concluded, indicating a tough road ahead for Solana amidst reduced speculative memecoin trading and ongoing market pressures.
At press time, SOL traded at $137.