Is the SOL Price Falling? Analysis of FTX's Solana Stake Sale

Analysis of the SOL price falling due to the risk of FTX selling its $1.06 billion Solana stake. Factors such as the unlock schedule of FTX’s holdings and derivatives market positioning suggest a potential counter move to the upside.

Posted 8 months ago in Altcoins


Image description: Chart showing the SOL price movement and volume.

Crypto traders are talking about the SOL price falling due to the risk of FTX selling its $1.06 billion Solana stake. Are they overexaggerating?

Solana has been associated with the founder of now-insolvent crypto exchange FTX and hedge fund Alameda Research, Sam Bankman-Fried. He was an early investor in the project and invested in numerous Solana ecosystem projects during the 2020-2021 bull mania.

When FTX collapsed toward the end of 2022, Solana (SOL) and other “Sam coins” plummeted significantly — with Solana falling to lows of $9.89, down 96.3% from the peak of $259.96.

Since the start of 2023, Solana’s price has staged a recovery, gaining 175% to reach a peak of $27.37 as the ecosystem also witnessed growth. However, more recently, SOL came under tremendous selling pressure after the Delaware Bankruptcy Court approved the sale of FTX’s digital assets, which include 55.75 million SOL worth $1.062 billion.

The unlock schedule of FTX’s holdings and derivatives market positioning suggest that a counter move to the upside could happen instead. After Judge John Dorsey made the ruling at a hearing on Sept. 13, the SOL price touched a weekly low of $17.96.

SOL gained around 4% on Sept. 14, with longs worth $800,000 liquidated since the prior day, per CoinGlass data. Crypto trader MartyParty believes that selling pressure is overblown, as the majority of FTX’s SOL stake is vested from 2025 to 2027.

Moreover, derivatives traders piled on with short orders after the announcement, which could result in a counter move to the upside. The Solana Foundation released an update on FTX’s Solana holdings after its collapse, which showed that a portion of SOL tokens held by the defunct exchange are locked until 2027.

According to the schedule, more than 33 million SOL tokens are yet to be unlocked. It represents more than 60% of FTX’s holdings to be sold in the market. According to the terms of the crypto conversion to fiat by FTX, there will be a cap of $50 million for the first week and $100 million in subsequent weeks, which limits the selling pressure.

There is an option to increase the limit, but it requires prior written approval of the creditors’ committee and ad hoc committee. There is also the option to raise the limit to $200 million weekly with the approval of the court. Assuming that the creditors can sell all the SOL tokens, they’d need around 10 to 12 weeks to unload their total holdings, which will distribute the selling pressure over time.

In the meantime, the price of SOL may exhibit volatility on both sides, especially if the futures market presents an opportunity for market makers or high-volume traders. The 30-day average daily volume on spot exchanges is $338 million, giving FTX’s selling pressure a small percentage of 4%.

MartyParty said of the comparison between daily spot volume and SOL’s potential selling pressure:

“retail shorts stacked to $30 liquidation level,” as he expects “all these to be flushed in a market maker squeeze.”

The liquidation heatmap from CoinGlass shows that there is a large number of leveraged positions on both sides of the current SOL price, with the most concentrated at $20.50 and $17.06.

Technically, SOL has faced resistance from the descending trendline since July. It is also trading below its 50- and 200-day moving averages of $21.08 and $22.09, respectively, which could act as resistance levels.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Last updated 9/15/2023, 3:19:17 AM

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