Solana price just one breakdown away from a 40% slide in June — here’s why

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Solana (SOL) is nearing a pivotal breakout moment as it moves towards the top of its prevailing “descending triangle” pattern.

40% price drop setup of SOL

Specifically, SOL price is consolidating within a range defined by a descending trendline resistance and horizontal trendline support, which appears like a descending triangle – a trend continuation pattern.

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Therefore, as SOL is trending down about 85% from its November 2021 peak of $267, it is more likely to break below the triangle range.

As a rule of technical analysis, the formation of a descending triangle is followed by a breakdown move until the price drops to the maximum height of the triangle. This places SOL’s bearish price target for June at $22.50, which is about 40% lower than today’s price.

The SOL/USD daily price chart is characterized by a “descending triangle” breakdown setup. Source: TradingView

But not all descending triangles lead to a breakdown, shows a study conducted by the Samurai Trading Academy. Specifically, based on the history of the pattern, the probability of a descending triangle setup reaching its profit target is 7 out of 10.

So that leaves the SOL with about a 30% chance of surviving a breakdown and rebounding.

Solana’s rebound scenario

Descending triangles that form during a downtrend but still lead to price reversals usually mark the bottom of an asset’s bearish cycle.

Suppose the SOL is consolidating above the horizontal trendline support of the triangle. Then, the SOL/USD pair can break the descending trendline resistance of the structure, and rise to its maximum high, aiming the reverse around $65, up about 72% from today’s price.

The SOL/USD daily price chart is characterized by a descending triangle reversal setup. Source: TradingView

The bullish profit target of the descending triangle coincides with the SOL’s 50-days EMA (50-days EMA; red wave) near $59.

Meanwhile, the daily relative strength index (RSI) of the SOL, which has been reversing from its oversold threshold of 30 since May 12, also raises the upside prospects of the coin.

Solana TVL down 75% from peak

Meanwhile, Solana’s fundamentals are mixed.

As a blockchain network, it had performed poorly in recent months due to back-to-back outages. While the total value locked (TVL) inside Solana’s smart contracts is $3.69 billion, down 75% from its December 2021 record high of $14.83 billion, data from DeFi Lama shows.

Solana TVL performance history. Source: Defi Llama

On the bright side, Solana experienced sustained growth in network usage, developer activity, network infrastructure and overall ecosystem in the first quarter of 2022, according to a study authored by James Trautman, a researcher at US-based crypto analytics firm Messari.

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“Several factors contributed to the Q1 results, including the continued growth of new NFT and NFT markets, diversification of TVL, improved UX, and new applications in multiple areas outside DeFi.

RELATED: Is Solana a ‘buy’ with SOL price below 10-month low and 85% below its peak?

On June 8, Solana’s venture capital arm launched a $100 million investment and grants fund to support its blockchain-based products in South Korea, a country whose crypto sector has been damaged by the recent collapse of Terra. 40 billion “algorithmic stablecoin” project.

The decision is expected to attract developers who want to move their projects from Terra to Solana, which could lead to higher demand for SoL.

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, so you should do your own research when making a decision.