Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Solana (SOL) has seen its price momentum wane, struggling to hold above the $150 mark despite previous predictions of breaching $500 or even $1,000. This slowdown comes as institutional demand for spot Solana Exchange-Traded Funds (ETFs) with staking capabilities gains clarity following new guidance from the U.S. Treasury and IRS, potentially spurring a fresh wave of investment.
Solana’s Recent Price Performance
In the current market, Solana’s upside momentum appears to be weakening, with buyers facing challenges in sustaining the uptrend. Short-term analysis indicates critical price levels to watch are $150 as support and $200 as resistance. Year-to-date, SOL crypto has declined by 21%, underperforming against Ethereum (ETH) and other major cryptocurrencies.
The past two weeks have seen Solana fall nearly 20% from its local resistance levels. This decline has also impacted its market capitalization ranking, with Solana sliding below BNB crypto, while XRP has cemented its position in the top five.
Market Sentiment and Future Catalysts
For Solana’s uptrend to regain strength, two primary factors are identified as crucial: a resurgence in meme coin activity on its network and increased institutional buying of SOL from spot markets. Despite the recent price struggles, futures traders show a degree of optimism. Data from Coinglass indicates that SOL futures trading volume on Binance has increased by nearly 10%, with the long/short ratio across Binance and OKX accounts remaining positive.
However, open interest, which measures all active positions, has stabilized after a significant collapse earlier this month. Overall, a sharp decline in open interest has been observed since its peak of over $15 billion in mid-September. Should more traders accumulate SOL at current spot rates, a recovery could see the token bounce from local supports, targeting $200 and potentially $300 in the medium term.
Spot Solana ETFs Drive Institutional Demand
The pace of any potential recovery will largely depend on the influx of institutional capital into Solana. Following the approval of spot Solana ETFs in late October, institutional investors have actively explored and acquired SOL-backed shares. Cumulatively, U.S. institutions have purchased nearly $600 million of spot Solana ETFs since their launch on October 28, with over $6.7 million in shares bought recently, primarily through Bitwise.
Bitwise’s BSOL offers a distinct advantage by providing a 5-7% Annual Percentage Yield (APY) through staking, combining price exposure with yield generation. In contrast, Grayscale’s GSOL currently offers only spot exposure without staking rewards.
Regulatory Clarity for Staking in ETFs
A significant development occurred on November 10, when the U.S. Treasury and IRS issued new guidance. This guidance provides a clearer framework for crypto Exchange-Traded Products (ETPs) to stake digital assets and distribute staking rewards to retail investors. This move is expected to enhance investor benefits and foster innovation within the crypto market.
To qualify for offering staking rewards, spot ETF issuers must hold only one type of crypto from a public Proof-of-Stake (PoS) blockchain and adhere to a specific liquidity protocol. Additionally, they are restricted from performing any functions beyond holding assets via a qualified custodian, with staking activities to be conducted through an independent staking provider.
Outlook on Solana Demand
This regulatory clarity is anticipated to encourage more issuers to apply for spot Solana ETFs. Such applications would facilitate greater institutional exposure to Solana, while simultaneously contributing to the network’s security in exchange for near risk-free APYs. The interplay of weakening price momentum and increasing institutional interest, particularly with the new staking guidance, sets a complex but potentially bullish stage for Solana’s future demand.
