Key Takeaways:
- SOL Open Interest weighted funding rate declined on Sept. 14.
- However, the chances of SOL short squeeze might not be high.
- SOL price has been on a bull run in the week beginning Sept. 11.
NEW DELHI (CoinChapter.com) — Blockchain platform Solana’s Open Interest weighted funding rate dropped on Sept. 14.
The funding rate decline likely resulted from the defunct crypto exchange FTX gaining the bankruptcy court’s approval to sell billions in crypto assets. The move would allow FTX to reimburse its users for the money they lost in a bid to restart the crypto exchange in the future.
US Bankruptcy Judge John Dorsey approved FTX’s request to sell up to $50 million worth of assets every week. Additionally, Judge Dorsey allowed FTX to enter into hedging and staking agreements to minimize volatility risks and earn passive income.
SOL Funding Rate Dips, But Shorts Liquidate
As news of the court order spread, the Open-Interest (OI) weighted funding rate for SOL dropped to -0.0193%. Funding rates refer to the periodic payments that futures contract holders receive, and it is equal to the difference between perpetual contracts and spot prices.
The OI-weighted funding rate dipped to -0.0193% on Sept. 14 before recovering to -0.0085% later in the day. The recovery might hint at traders opening more long positions as posts refuting a sudden dump of SOL tokens flooded social media.
Another reason for the declining negative funding rate could be that traders are closing their short positions since the SOL price refused to capitulate to the FUD and spiked 5.1% to a daily high of $19.3 on Sept. 14.
Moreover, as the SOL price rallied, more short positions became liquidated, forcing traders to buy SOL tokens to meet their margin calls. The increased buying pressure further propelled SOL prices.
However, the Open Interest for SOL is increasing. Combined with the negative funding rate, it might suggest bearish sentiment against the Solana token remains in the market.
SOL Short Squeeze Risks
If the asset price increases for any reason, it can result in sudden liquidation of short positions. Over the past 24 hours, SOL saw nearly $2.56 million in liquidations, with short positions accounting for $2.11 million in liquidations.
A risk that comes with shorting an asset is when a bullish cue drives up prices, forcing liquidations and resulting in short traders scrambling to buy the underlying asset back and cover their losses.
However, the resulting buying pressure could build upon itself and cause the token to rally sharply, resulting in a ‘Short Squeeze.’
SOL short liquidations spiked after crypto experts cleared the air surrounding the FTX auction. Most traders believed Galaxy Asset Management, acting on behalf of FTX, would immediately dump the exchange’s assets.
However, Jeff Dorman, CIO of investment firm Arca, took to X to share that Galaxy would likely sell the crypto assets gradually to minimize the impact of increased supply. Moreover, Dorman speculated that most of the trading would be over-the-counter (OTC) sales, offering greater flexibility.
Furthermore, on-chain data provider Messari noted that the impact of the tokens sale depends on each asset’s actively traded volume. The firm cited Bitcoin’s (BTC) example, stating that the BTC market would easily absorb the impact of any sales from FTX.
Messari noted that Alameda holds the token for SOL and largely includes vesting tokens “that are not immediately liquid in open markets.”
Only $9.2M SOL will be unlocked per month, which significantly reduces the liquidation impact and places it more in line with the manageability of BTC & ETH liquidations.
Messari noted in a post
As such, SOL’s vesting schedules and OTC sales would have significantly less than anticipated market impact. Unless Solana announces some key updates or partnerships during the auction period, a short squeeze will unlikely occur.
Furthermore, if the SOL price does not crash and burn, more traders could take up long positions for the token, given that Solana has been doing well recently with no major crashes or hacks.
SOL Price Rallies 11.5% WTD
Meanwhile, SOL price rallied 11.5% since Sept. 11 to reach a daily high near $19.34 on Sept. 14. Bears are desperately trying to stall the bull run, evident from the long wicks on the Solana token’s daily price candles.
Short squeeze or not, news that the FTX auction would not result in a massive SOL dump on the market would likely help bulls relax. Furthermore, the Solana token price likely benefitted from the short liquidations.
SOL price spiked by over 6.5% from the day’s low of $18.4 on Sept. 14 but bears pared gains. The bearish pressure against the token would likely continue, with bulls trying to push SOL price above the 20-day EMA (red wave) resistance near $19.7.
The immediate resistance level previously supported SOL prices, with the Solana token price rebounding six times from the level between Feb. 2023 and Aug. 2023.
Breaking above this key resistance could infuse confidence in SOL price’s rally, helping the token break above the July-Sept. Descending trendline (dashed line) and target the 100-day EMA (blue wave) resistance near $21.2.
Furthermore, a rally could help the Solana token confirm the bullish technical pattern it is currently moving inside.
Conversely, if the bears succeed in pushing prices down, the Solana token price might drop to the support near $17.8. Breaching the immediate support level could force the SOL price to test the resistance near $16.5 before recovering.
The RSI for SOL remained neutral, with a score of 40.37 on the daily charts.
