Solana (SOL) fell more than 9% on Wednesday, from $205 to a low of $186 amid a spate of long liquidations and mounting bearish pressure in futures markets. The move unwound some of the recent token gains but, in analysts’ opinion, may be a salutary adjustment rather than breakdown in trend.
SOL was at $182.90 when the press happened, still significantly higher from levels it held a month ago. The fall was Solana’s largest one-day percentage drop since March 3, when it declined by over 20%.
$30 million in long positions liquidated
The sharp drop was catalysed by over $30 million in long positions being liquidated on the exchanges. Open interest (OI) in SOL futures had reached a record level of $12 billion earlier this week, suggesting the market was significantly skewed towards leveraged long bets. As the price began to drop, these positions began to unwind fast, intensifying the drop.
According to on-chain analytics data, a number of red flags would have had to come before this adjustment. Net taker volume, which would be indicative of aggressive sell and buy orders, went into the red, implying that sellers were more dominant. Spot market cumulative volume delta (CVD), a formula used to indicate whether buyers or sellers are dominant, also declined, indicating many traders took profits at the $200 level. Meanwhile, futures CVD fell steadily despite higher prices earlier this week, a bearish divergence that hinted at underlying weakness.
A crowded trade
Adding to sell pressure, funding rates for perpetual contracts hit quarter highs, indicating an over-leveraged long position. As open interest soared and funding rose, the market was vulnerable to a long squeeze, a condition where short selling marginal buyers pressures them out of positions, contributing to downward pressure. Technical analysts remain bullish on Solana’s overall trend in spite of these bearish indicators.