Solana Selloff Deepens Amid Crypto Market Rout — Bounce Next?

On Aug. 5, Solana’s (SOL) price dropped by over 19% to around $112.80, its lowest level in five months. The losses were part of a broader correction cycle that started a week ago when SOL formed a local high at around $194. That brings its net returns to around -40%.

SOL Most Oversold in a Year — Bounce Next?

Meanwhile, these declines have pushed SOL’s price to its most oversold state in a year, raising the potential of a possible rebound in the coming days or weeks.

Simultaneously, SOL’s daily relative strength index (RSI) dropped to around 29, its lowest reading since August 2023. For the unversed, a reading below 30 is considered oversold, meaning the price is trading below its notional value. As a result, traders typically treat an oversold RSI as an opportunity to buy the dip, leading to a period of consolidation or rebound.

The technical rule does not guarantee a full-fledged rebound, however. At its current best, SOL’s price can retreat toward its next resistance level around its 200-day exponential moving average (200-day EMA; the blue wave), which coincides with the upper trendline of its prevailing descending triangle pattern.

This bounce will likely be similar to the ones witnessed during the April-May session. The only difference is that the price was trading above the 200-day EMA during that period, treating the wave as support instead of resistance.

That said, it becomes important to wait for a clear breakout above the 200-day EMA—the price rising above the blue wave while accompanying a rise in trading volumes—before considering any extended bullish positions.

The fundamentals around the Solana market indicate a similar cautious sentiment.

Global Market Rout is Hurting Solana and Other Cryptocurrencies

Solana’s recent decline is mirroring the intensified global stock and crypto market selloff, driven by growing concerns about the economic outlook and skepticism over the massive investments in artificial intelligence living up to the surrounding hype. Heightening geopolitical tensions in the Middle East are further shaking investor confidence.

The unwinding of the yen carry trade is also impacting cryptocurrencies as speculators adjust to rising interest rates in Japan and the prospect of three rate cuts in the United States.

Hayden Hughes, head of crypto investments at family office Evergreen Growth, explains that these investors are grappling with sharply increased hedging costs due to the volatility in the U.S. dollar-Japanese yen trading pair.

“Investors are facing a double whammy: adjusting to higher rates in Japan while contending with soaring hedging costs amidst a turbulent forex environment,” Hughes commented.

As a result, the dollar, gold, and other perceived safe-havens have declined alongside riskier stocks and cryptocurrencies—a rare sight that shows traders are rushing toward the yen instead. However, the upcoming rate cut in September may reverse some of the losses in Solana and, in turn, the crypto market.