Cryptocurrency Solana Skyrockets Over 500%, Liquidity Challenges Await


As Solana (SOL) experiences a prodigious ascent in the crypto market, daily performances hover above a $50 trading rate, soaring an astonishing 520% within this past year alone. A cryptocurrency once waning to a meager $8 following the infamous downfall of FTX – a once flourishing, now extinct, crypto exchange – along with Alameda Research, a trading wing closely aligned with FTX and previously one of the foremost makers in the crypto market.

Despite this triumphant rally, Solana isn’t without its besetting issues. A notable disparity in liquidity in USD and “native unit” terms has emerged, sparking concern from Kaiko, a respected crypto analytics platform. The “native unit” in question refers to the principal unit of account of any currency, with SOL representing Solana. These native units provide a simplified method of gauging the relative liquidity of a coin, negating the need to translate it to other denominations, such as USD or BTC.

In November, Kaiko’s observation revealed that Solana’s liquidity in USD terms was at a peak level since the collapse of FTX. However, gauging SOL’s liquidity employing “native units” painted a discordant picture, with liquidity presenting at its lowest point since the FTX demise.

The downfall of FTX sent shockwaves not only through SOL’s ecosystem but the broader crypto economy as well. In the aftermath of Sam Bankman Fried’s exchange’s bankruptcy in November 2022, SOL prices plummeted while the looming specter of contagion resulted in dwindling Bitcoin (BTC) prices, disturbing its reputational slowing as a safe haven.

By this time, Bitcoin had suffered a flash crash below $16,000, while Solana tumbled from highs of $220 to a lowly $8. This sudden reversal catalyzed an adverse liquidity tighten that was acutely felt by Solana.

Taking into account how liquid SOL is in its native units, it’s clear that liquidity recovery is a yet-to-be-achieved milestone that could require more time despite the prevailing optimism in Solana communities. A consensus from Kaiko suggests market makers are favoring stable liquidity for SOL, even in light of its skyrocketing prices in USD terms.

Currently, SOL prices are stable over $50 and remain on an upward trajectory against the USD. However, there are early whispers that the upside momentum might be tempering, and SOL traders potentially vacating their long positions. As a result, $38, November 2022’s peak, is now an essential reaction point according to technical analysts.

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