Is Solana a ‘buy’ with SOL price at 10-month lows and down 85% from its peak?

60% SOL price decline ahead?

However, a rebound scenario is far from guaranteed and Solana faces headwinds from trading in lockstep with Bitcoin (BTC), the top cryptocurrency (by market cap) that typically influences trends across the top altcoins.

Notably, the weekly correlation coefficient between BTC and SOL was 0.92 as of June 4.

SOL/USD versus BTC/USD correlation coefficient. Source: TradingView

What's more, Solana is likely to see even bigger losses than BTC if Bitcoin falls deeper below its current psychological support level of $30,000.

Meanwhile, the Federal Reserve looks determined to raise benchmark interest rates and reduce its balance sheet. As a result of this hawkish policy, riskier assets like Bitcoin have room to go lower, hurting Solana's bullish prospects.

Breaking below SOL's current support level—around $35—raises the chances for a decline toward the $18-25 range, which acted as a strong support area in March-July 2021, and preceded a 1,200% price rally, as shown below.

SOL/USD weekly price chart. Source: TradingView

This bearish scenario would put SOL almost 60% below today's price.

Solana network outages

The bearish outlook for SOL also comes as the Solana blockchain faces repeated outages, thus leaving its network practically unusable for its key "dapps," including lending protocol Solend and decentralized exchange Serum, for hours.

Solana's latest software glitch appeared on June 1 that shut down the network for 4.5 hours. The blockchain's biggest outage happened in January and was down for almost 18 hours.

Validator operators successfully completed a cluster restart of Mainnet Beta at 9:00 PM UTC, following a roughly 4 and a half hour outage after the network failed to reach consensus. Network operators an dapps will continue to restore client services over the next several hours.

— Solana Status (@SolanaStatus) June 1, 2022

The outages risk spooking investors to the benefit of Solana's competition and have already coincided with several traders rotating their capital elsewhere.

Just sold all of my $SOL for $ADA. Solana is a great project but personally I cant in good faith continue to invest in a layer 1 that shuts down on a frequent basis (partial and major outages about 11 times).

#ADA #Cardano

— $Smac07_NFT$ (@Shawn_Deezy07) May 31, 2022

Miles Deutscher, an independent market analyst, believes crypto investors have become cautious after witnessing the recent Terra fiasco. Nonetheless, the analyst asserts that Solana's outages would decrease over time as the network matures.

"But if they fail to stifle such events, then other L1s [layer-1 blockchains] will continue to eat away at its market share," he noted.

8/ However, the reasons I like Solana still stand:

• Scales using a single global state (liquidity isn’t fragmented).
• Low cost and fast (despite handling the most transactions of any chain).
• 3rd most developed on chain (Electric Capital)
• Large list of VC backers

— Miles Deutscher (@milesdeutscher) June 2, 2022

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Bitcoin

The greenback regained strength in hopes that stronger inflation data in the U.S. would revive a tighter monetary policy and after better-than-expected retail sales growth.

Bitcoin (BTC) logged its worst daily performance since September as BTC price slid by 10% to under $59,000 on Tuesday. On the other hand, the U.S. dollar jumped to its best level in sixteen months after spending across the American retail sector grew despite persistent Covid-19 fears and inflation concerns.

The BTC price established an intraday low of around $58,600 on Coinbase, only to retreat higher to reclaim $60,000 as its psychological support. Its move downside appeared as U.S. President Joe Biden signed the $550 billion infrastructure bill into law, including new tax-reporting requirements for cryptocurrency users.

Some used the news yesterday (Infrastructure Bill) to shake the tree and get some more cheap bags of #bitcoin for themselves.
— David Gokhshtein (@davidgokhshtein) November 16, 2021

Stronger retail data

Meanwhile, the dollar continued its prevailing bull run smoothly as sales at the U.S. retail stores rose by 1.7% in October versus 0.4% in the previous month. That provided another evidence — after an excellent Nonfarm Payrolls report last week — that the U.S. economy has been rebounding strongly from the Covid-19 lows.

As a result, investors raised their bids on the dollar, anticipating that the Federal Reserve would accelerate the tapering of its $120 billion a month asset purchase program, leading to earlier-than-expected rate hikes, which remained near zero since March 2020.

The U.S. dollar index (DXY), which measures the greenback's performance against a basket of top foreign currencies, touched an intraday high of 95.821 on Nov. 16, its highest level since July 2020. Conversely, Bitcoin, which rallied strongly against a lower interest rate environment throughout 2020 and 2021, retreated.

*DXY weekly price chart. Source: TradingView*

More gains ahead for the dollar

Analysts anticipated the dollar to continue its growth higher in the coming months ahead, with market analyst Scott Melker predicting DXY to reach 97.50.

At the core of Melker's bullish outlook was a "double bottom" setup.

In detail, Double Bottoms appear when the price forms two low points on a similar horizontal level to represent a potential bullish reversal. A bullish confirmation comes when the price breaks above a specific resistance level — a high point between the two bottoms — to target level at a length equal to the pattern's maximum height.

So it appears, the U.S. dollar index has been breaking out of a similar Double Bottom setup, as shown in the chart below.

*DXY daily price chart featuring double bottom setup. Source: Scott Melker, TradingView*

Bitcoin grapples with a mixed outlook

Bitcoin has more than doubled its prices in 2021 amid growing concerns about inflation. Nigel Green, chief executive of DeVere Group, noted that the cryptocurrency may keep on surging in value at least until the second quarter of 2022, citing the U.S. consumer price index's (CPI) recent climb to its three-decade high.

"This latest data out of the U.S. will only compound global fears about inflation as price pressures run hot around the world," he noted, adding:

"In this inflationary period, Bitcoin has outperformed gold, which has been almost universally hailed as the ultimate inflation hedge – until now."

*BTC/USD daily price chart. Source: TradingView*

Vijay Ayyar, head of Asia Pacific with crypto exchange Luno in Singapore, called Bitcoin's ongoing correction a "healthy pullback," especially after its 175%-plus year-to-date price rally to $69,000.

"It would be unusual to keep moving up without corrections," he noted.

On the other hand, Joel Kruger, a currency strategist at LMAX Group, said that a tighter Fed policy would start weighing on the broader market, hitting the riskiest assets the hardest, a reason why Bitcoin and the rest of the crypto market has been retreating against a rising dollar.

Martha Reyes, head of research at Bequant, a digital-asset firm, also called Bitcoin "a risk-on investment," stating that people would want to raise cash from the most profitable assets in times of stress.

Bitcoin was trading at $60,625 at the time of writing.

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