Following its peak at $195 a few weeks ago, Solana [SOL] has faced significant bearish pressure, leading to a drop to a three-month low.
The downward trend in Solana’s price raises questions about the factors contributing to its decline. Analysis indicates that the fundamental challenge lies in the decreasing on-chain activity of Solana.
Decline in Solana’s On-chain Activity
Solana has been witnessing a gradual decrease in on-chain activity in recent months, with the daily active addresses on the network hitting a three-month low of 3.5 million.
A reduction in active users indicates waning market interest and slower adoption rates. This decline often translates to decreased on-chain transactions, potentially resulting in a drop in price.
Historically, a decrease in the number of users is typically linked to a decline in price due to reduced demand.
The diminishing on-chain activity on Solana is also reflected in the dwindling trading volume on Decentralized Exchanges (DEX). Reports show that the DEX volume has fallen to a four-month low of $1.5 billion.
This decline hints at a loss of confidence in the network, with investors showing a preference for Centralized Exchanges (CEX) due to security concerns.
Furthermore, the volume of stablecoin transfers within the Solana network has dropped to $7.1 billion, down from $394 billion a month ago.
This substantial decrease points to investors, especially major ones, exploring alternative chains like Ethereum [ETH].
It also indicates a cautious approach among SOL investors.
Impact on SOL’s Performance
The diminished on-chain activity has had a detrimental effect on Solana’s price trajectory, impacting the demand side of SOL tokens. Decreased demand usually leads to lower buying pressure, allowing sellers to dominate and driving prices down.
As of the latest data, Solana is trading at $158, marking a 7.09% decline on a daily basis. Over the past month, Solana has witnessed a 35.52% drop.
Given the prevailing downward pressure and weakened demand, SOL’s price may continue to decrease.
If the current trend persists, SOL could risk falling to $154. However, a potential recovery to $175 is on the cards if buyers seize the opportunity to capitalize on the price decline.