Solana is not keeping up with the market. Data shows why.

Key points

• SOL's downtrend had some reasons behind its acceleration, such as a $116 million hack of decentralized finance application Mango (MNGO), and blocked crypto activity by a German data center operator and cloud provider Hetzner.
• Solana’s total open interest has been fairly stable at $440 million over the past 30 days, while such coins as BNB and MATIC gained x2 to their open interest for the same period of time.
• Solana's data is a bit concerning as it shows a lack of interest from leveraged buyers.

Solana has been in a steady downtrend for the past three months, but some traders believe it may have bottomed out at $26.80 on Oct. 21. There has been a lot of speculation lately about the reasons for the underperformance, with some analysts pointing to competition from Aptos Network.

Launched on October 17, the Aptos blockchain claims to process three times as many transactions per second as Solana. But after four years of development and millions of dollars in funding, the debut of the Layer 1 smart contract solution is not that impressive.

It should be emphasized that Solana currently has a market cap of $11.5 billion and a nominal price of $32, making it the seventh-largest cryptocurrency when excluding stablecoins. Despite its sheer size, SOL's year-to-date performance reflects a subdued 82% decline, compared with a 56% decline in the broader global market cap.

Unfortunate events negatively impacted the price of SOL

The downward trend accelerated on October 11 after the leading decentralized finance application on the Solana network suffered a $116 million hack.

Mango Markets’ oracles were attacked due to low liquidity in the platform’s native Mango (MNGO) token (used as collateral). In the long run, hacking accounts for 9% of Solana’s total smart contract value (TVL).

More negative news surfaced on Nov. 2 when German data center operator and cloud provider Hetzner began blocking encryption-related activity. The company’s terms of service prohibit customers from running nodes, mining and farming, and mapping and storing blockchain data. Nonetheless, Solana nodes have other cloud storage providers to choose from, and Lido Finance confirmed that the risk for its validators has been mitigated.

After Instagram integrated support for Solana-based non-fungible tokens (NFTs), a potential partnership was announced on Nov. 2 to allow users to create, sell and showcase their favorite digital artwork and collectibles. The SOL responded immediately at 5.7% pump speed within 15 minutes but returned the entire action over the next hour.

For a more detailed look at where SOL prices are moving, traders can also analyze Solana's futures market to see if bearish news has affected the sentiment of professional traders.

Derivatives metrics show an unusual level of apathy

Whenever there is a significant increase in the number of derivative contracts currently traded, it usually means more traders are involved. In the futures market, longs and shorts are always balanced, but a large number of active contracts (open interest) allows participation by institutional investors who require a minimal market size.

Solana’s total open interest has been fairly stable at $440 million over the past 30 days. By contrast, Polygon's total futures position rose to $415 million from $153 million on Oct. 3.

The BNB chain’s token BNB showed a similar trend, reaching $485 million, up from $296 million on Oct. 3.

However, open interest does not necessarily mean that professional investors are bullish or bearish. Annualized contango measures the difference between longer-dated futures contracts and current cash market levels.

The contango indicator (the benchmark rate) should be between 4% and 8% to compensate traders for "locking up" funds before the contract expires. So readings below 2% are falling, while readings above 10% indicate over-optimism.

For the past 30 days, Solana’s futures have been in backwardation, meaning futures contract prices below regular spot exchanges, Laevitas data shows.

Ether futures have an annualized trading rate of 0.5%, while Bitcoin is 2%. Solana's data is a bit concerning as it shows a lack of interest from leveraged buyers.

Rumors about the Alameda study could create more pressure

It’s hard to pinpoint the reason for such apathy toward Solana or even the complete dominance of short-leverage demand. Even stranger is the influence of Alameda Research on the Solana project. Alameda is a digital asset trading firm led by Sam Bankman-Fried.

More recently, trader and cryptocurrency Twitter influencer Hsaka has expressed concern over whether the company has been suppressing the price of SOL, even after a bullish catalyst.

Entire market catching a bid meanwhile Sol aimlessly meandering after two hyper bullish catalysts in such an environment.

Alameda washed up. https://t.co/FuGQvMfRcF

— Hsaka (@HsakaTrades) November 4, 2022

Market participants are unlikely actually to experience Alameda Research's impact on SOL prices. Nonetheless, the theory proposed by Hsaka could explain the rather unusual steady demand for leveraged shorts and negative benchmark rates. Arbitrage and market-making firms could have used derivatives to reduce risk without selling SOL on the open market.

There are no signs that short sellers using SOL futures instruments are on the verge of liquidation or exhaustion, and they have the upper hand before the broader cryptocurrency market shows signs of strength.