Solana Declines 5% Based on New FTX Plan, Quick Recovery Could Liquidate $125 Million Shorts

Solana declined by 5% in 24 hours following FTX sell-off concerns. However, up to $125 million in short positions are at risk of liquidation if Solana rebounds. 

The price decline follows a 40% decrease in Solana’s open interest (OI) in the last 30 days. CoinGlass data revealed that SOL open interest declined to $1.78 billion on May 9. 

Such a sharp decline in OI often signals a trader’s indecision about investing in a crypto asset. However, Solana has recently been observed to recover swiftly from dips. Such a recovery pattern, when it happens, threatens millions of dollars in short positions. 

Solana Price Dips Raise Concerns for Liquidation 

Historical price data reveals that Solana experienced a similar 5% dip on April 19, But it quickly recovered within a few hours ahead of the April 20 Bitcoin halving. So, if Solana’s price rebounds by 5% to $157, then $125 million in short positions will suffer liquidations. 

A few days ago, pseudonymous trader CryptoAce predicted Solana’s price was inside the resistance box. He accurately predicted that SOL would face rejection at $148 and drop to $142.50.

$SOL
Price inside resistance box, time to pay attention if it consolidates here or rejects

A rejection would pull it back to $148 and below that $142.5 possible
Next 24hours are crucial for market structure to hold uptrend or not https://t.co/bgbjE9e7Qx pic.twitter.com/9bqgd53631

— Crypto𝔸ce (@CryptoAceBull) May 7, 2024

Solana’s price dip is likely a result of FTX’s announcement that it has realized enough funds to repay its victims of the exchange’s 2022 fallout. FTX proposed to make this repayment after selling off its assets, which include a large portion of Solana. 

The FTX Debtors today filed their anticipated amended Plan of Reorganization and accompanying Disclosure Statement with the U.S. Bankruptcy Court. Read about it here https://t.co/EGmlVdWOaS below: pic.twitter.com/bwwvRolX21

— FTX (@FTX_Official) May 7, 2024

FTX sold almost two-thirds of its SOL assets to Galaxy Trading, Pantera Capital, and Neptune Digital Assets. This sale was processed at a 63% discount, leading to a 37% price drop for Solana after the auction. 

FTX still holds an estimated 11-15 million SOL tokens that could be subject to more discount auctions. However, a four-year lock period prevents these tokens from being traded for now, thus preventing a supply shock. 

Also, a decline in the general crypto market is another evident cause of Solana’s price decline. While a swift Solana price rebound remains uncertain, some analysts are bullish on the asset. 

Crypto analyst Dan Smith believes SOL will surpass Ethereum in transaction fees this month. If this happens, Solana will likely ride on a renewed investor interest, transitioning into a bullish phase. 

How is SOL Faring Today?

SOL has formed an inverted hammer on the daily chart, which signals a possible trend reversal. It has found support at $141.2 and is attempting to rally above the $147.3 resistance level.   

The long upper wick on today’s candle suggests that the buyers and sellers are still active. Additionally, the RSI indicator is in the neutral zone with a value of 46.74, confirming traders’ indecision in the market.  

However, the Parabolic SAR is still under the candles, confirming a return of buyers to the market. Therefore, SOL will likely rebound from the $141.2 support level to rally in the coming days.