Solana (SOL) Faces Resistance at $190: Reasons Explained

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Solana (SOL) Price Stumbles After Network Changes and Ethereum ETF Hype

Solana’s token, SOL, experienced a short-lived rally before retreating. Despite a 5% increase on May 27th, the price couldn’t hold above $171 and has since slipped back down to $161. This pullback comes amidst concerns about network activity and the recent approval of an Ethereum (ETH) exchange-traded fund (ETF) in the US.

Shifting Reward Structure Raises Inflation Concerns:

On May 27th, Solana validators approved a proposal (SIMD-0096) that removes the 50% burn on priority transaction fees. This means all fees will now go to block producers, potentially increasing inflation for SOL. While some analysts estimate the annual inflation rate could rise to 9.9%, others worry it could be higher.

Focus on Ethereum ETF May Have Dampened SOL Enthusiasm:

The approval of the US’s first Ethereum ETF on May 23rd may have diverted investor attention away from SOL. Some analysts believe traders turned bearish on SOL due to excessive focus on the Ethereum ETF, despite SOL’s impressive year-to-date gains (69%) that closely mirrored Ethereum’s (72%).

Solana Network Activity Lags Behind Competitors:

While the impact of the fee change on inflation is debated, Solana’s network usage remains stagnant compared to Ethereum and its layer-2 solutions. Recent data shows a meager 5% weekly increase in Solana’s decentralized application (DApp) volumes, significantly behind Ethereum’s 52% rise.

Competition Heats Up:

BNB Chain saw a 22% increase in DApp volume over the same period, highlighting Solana’s relative weakness. Even in terms of active users, Solana’s 6% weekly decline is concerning, especially when rivals like BNB Chain and Polygon are witnessing user growth exceeding 25%.

Solana’s Future Uncertain:

It’s unclear how much of the recent SOL price dip is due to Ethereum ETF speculation or the inflationary concerns surrounding the fee change. Additionally, the timeframe for these ETFs to begin trading in the US remains unknown.

Given the sluggish network activity and criticism of the inflationary changes, it’s uncertain if SOL will soon reclaim its previous high of $188.90. Investors should closely monitor network usage and future developments in the Ethereum ETF space before making any decisions.

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