What is fueling this week's Solana rally?

Solana trading strong: The last few weeks have been nothing less than a dream run for the ‘Ethereum Killer’ which has recorded close to a 100 per cent price rise since last month. Solana (SOL) which touched a low of $8 earlier this year, is currently changing hands at $113 apiece. This whopping surge of 890 per cent might look one-dimensional but there is more than just one factor which is fuelling the strong Solana rally. 

Solana 24-hour price chart | Image credit: CoinMarketCap

A few days back, Solana touched the year-high of $118 and after some profit booking at that level, it is currently ranging between $110-$116 levels. Here are some of the factors which are driving this week’s Solana rally. 

Ethereum’s gas fees

The cost of conducting transactions on the Ethereum network, known as gas fees, has witnessed a decline of more than 50 per cent from its recent peak earlier this week. In mid-December, when the gas prices registered a strong surge, users looked out for alternative blockchain networks offering more cost-effective solutions. 

Ethereum gas last week prices | Etherscan.io

This surge in user migration towards more cost-effective, and faster blockchain networks, made Solana a perfect choice for more inflows. As a result, not only the active addresses on the Solana network neared one million, but the total value locked on the platform also surged. 

Active addresses on Solana | Image credit: TheBlock.Co

A high count of active user addresses on a blockchain network indicates increased adoption, user engagement, and positive market sentiment. This suggests that the network is getting widely used and has the potential to scale and scale well. However, this can also fuel the transaction fees on the network. 

Total value moved on Solana blockchain | Image credit: TheBlock.Co

On the other hand, high transaction volumes as in the case of the Solana network show increasing market interest in native tokens and applications which eventually leads to generating higher revenue for network validators. 

Increased institutional inflows

Investment funds operating on the Solana blockchain garnered inflows amounting to $10.6 million, surpassing the investment traction of Bitcoin (BTC) and Ethereum. Solana funds have accumulated inflows totalling $14.1 million this December, marking a peak within the cryptocurrency sector.

According to media reports citing CoinShares, the funds are flowing towards multiple asset classes despite Solana's recent surge. 

Observations from a three-day chart reveal that while Solana's price trajectory has displayed incremental peaks, indicators such as the Relative Strength Index (RSI) and trading volumes have registered diminishing highs. This divergence in metrics suggests an emerging bearish sentiment, possibly foreshadowing a potentially possible market correction.