On-Chain Data Reveals Significant Liquidity Contraction
Solana's on-chain data indicates a contraction in liquidity down to bear market levels. Approximately $500 million in leveraged long positions are at risk of liquidation if the price experiences a 5.5% drop, falling to $129. The altcoin's 30-day average realized profit-to-loss ratio has remained below 1 since mid-November, suggesting that realized losses are currently exceeding profits.
According to on-chain analytics platform Glassnode, a ratio below 1 signifies a substantial retreat in liquidity. This contraction is being described as a "full liquidity reset" for Solana, a pattern that has historically preceded bottoming phases and the commencement of new liquidity cycles.
Factors Driving the Liquidity Reset
Altcoin Vector analysts have noted that this reset is being influenced by several factors. Realized losses are prompting sell-offs, futures open interest is declining, market-makers are retracting their participation, and liquidity is fragmenting across various trading pools. If the current pattern mirrors April's setup, a potential reignition of liquidity could take approximately four more weeks, aligning with early January.
Wenny Cai, COO of SynFutures, commented that while the mid- to long-term outlook for Solana remains cautiously optimistic, particularly if macroeconomic pressures ease, the near term is characterized by volatility and susceptibility to shocks. The market is navigating competing forces between structural support and the inherent risk of liquidation.
Structural Support and Institutional Inflows
Structural bullish support is becoming evident through consistent outflows of Solana from exchanges, which effectively reduces the readily available sell-side supply. Capital continues to flow into spot Solana Exchange Traded Funds (ETFs). These ETFs have accumulated $17.72 million in net inflows this week, nearly matching the previous week's haul of $20.30 million, according to data from SoSoValue.
Ryan Lee, chief analyst at BitGet, views this situation as an opportunity for strategic accumulation and network upgrades. Such developments are seen as crucial for fostering long-term resilience and driving innovation within the Solana ecosystem. However, despite these underlying bids, the leverage market conditions remain tense.
Broader Market Leverage and Solana's Position
Bitcoin's subdued price action and significant liquidation spikes suggest that leverage remains relatively elevated across the broader cryptocurrency market. Over the past 24 hours, liquidations totaling $432 million have occurred, as reported by CoinGlass data. In the same period, Solana experienced a 3.2% price increase, leading to $15.6 million in forced liquidations. This positions Solana as the third-largest liquidated asset, following Bitcoin and Ethereum.
The surge in liquidations occurred in the wake of Bitcoin's price bounce. Nevertheless, a drop to $129 would trigger the liquidation of $500 million in long positions. Lee further elaborated that such a price decrease would signify a healthy market reset, effectively clearing excess leverage and creating conditions conducive to renewed institutional inflows and a stronger subsequent rebound.
Conversely, an upward price movement of nearly 3% would trigger approximately $110 million in short covering, potentially adding further momentum to Solana's recent recovery.