Understanding the Recent Decline of Solana (SOL): Key Factors at Play

Solana’s native token, SOL, has experienced a significant decline of nearly 12.75% within the last 24 hours, plummeting to a three-week low of $112.50 on April 3. This downturn has raised concerns among investors and market analysts alike.

Several key factors are driving SOL’s sharp correction:

• The recent tariffs announced by the Trump administration, threatening to erase trillions from the stock market.

• Declining SOL futures basis and funding rates.

• Multiple technical indicators suggesting bearish trends.

In this post, we will delve into these catalysts to gain a better understanding of their impact.

Trump Tariffs Rattle Solana and the Broader Crypto Market

The timing of Solana’s decline correlates with the announcement of US President Donald Trump’s “Liberation Day” tariffs on April 2. The increase in trade tensions prompted investors to steer clear of riskier assets, including cryptocurrencies like SOL, opting instead for safer investment opportunities.

SOL’s price decline closely mirrors a drop in demand for its futures market, evident from the steep decline in the annualized rolling basis on three-month contracts. The rolling basis indicates the difference between futures contracts and the current spot price—the expectations of traders in terms of near-term price movements.

A high basis reflects strong demand for long positions, while a low or negative basis indicates weakening interest or a shift towards bearish sentiment. With SOL’s futures basis peaking at 18% in mid-November 2024 and now falling below 0% as of April 3, traders are clearly less optimistic.

Solana’s Funding Rates Turn Negative

In addition to the issues highlighted above, Solana’s declining funding rates are also contributing to the bearish outlook. As of April 3, SOL’s weekly funding rates dipped to -0.0462 from 0.14% a day earlier. This negative funding condition suggests that short traders are now paying long traders, indicating an expectation for further downside pressure.

Technical analysis of SOL’s daily chart reveals a bear flag continuation pattern. Such a pattern often leads to further declines, and predictions suggest that SOL could drop to $96 as it trades below the lower trendline of the flag pattern.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research before making decisions.