Selling Solana now is a big mistake! Sol signals a 35% hike

Exploring the reasons why investors should not lose hope over Solana just yet.

Solana's price experienced a crash on January 20, slicing through two crucial barriers. However, SOL has not created a lower low from a high time frame perspective, suggesting that buyers are preventing a further decline. Solana's price crashed 16% in 24 hours, causing it to slice through the 200-day Simple Moving Average (SMA) at $140.54 and the weekly support level at $135.71. Interestingly, this development was cushioned by the bullish momentum since the crash occurred inside a daily demand zone that extends from $115.51 to $144.70. A breakdown of the said demand zone to create a daily candlestick close below $115.51 will create a lower low from a high time frame perspective, indicating that the price wants to head lower.

However, Solana's price is currently inside this demand zone and has a chance to recover. A daily candlestick close above the weekly support level at $135.71 and preferably above the 200-day SMA at $140.54 will indicate a resurgence of buyers and indicate that SOL could retest the 50-day SMA coinciding with the daily supply zone, extending from $169.79 to $179.19, constituting a 33% advance. On the other hand, if Solana's price produces a daily candlestick close below $115.51 it will create a lower low, invalidating the bullish thesis. This development will suggest that a bearish outlook is in play and open the path for a 35% crash to the next daily demand zone that stretches from $65.91 to $78.76.

It's Not the Time to Fear Yet

Solana (SOL) was one of the top-performing cryptocurrencies of 2021. It started the year in the 120th position in terms of market cap and finished in the 5th, overtaking heavy hitters like Cardano (ADA) and Polkadot (DOT). Solana is a smart contract cryptocurrency that some belief could rival Ethereum (ETH). It is extremely fast and transaction costs are a fraction of those on the world's second-biggest blockchain. However, 2022 is not off to a great start so far. Solana is down almost 17% since the start of the year and about 45% since its November highs. Let's take a look at the reasons for the drop and what it might mean for investors. The total money invested in cryptocurrency has fallen by over 30% since mid-November last year, and many big cryptocurrencies have lost value. Wider economic factors have played a big part. After many months of fiscal and monetary stimulus, the Federal Reserve announced it will start to tighten its stance. In addition to other measures, it looks like the Fed could now increase interest rates in March, which was earlier than people expected. This, combined with the omicron variant, sent the crypto market into a tailspin as people pulled out of riskier asset classes.

The Technical Issues in Solana Ecosystem

Solana's rapid growth has not been trouble-free. The ecosystem, which now hosts over 1,000 projects, has had several outages in the past six months. The most serious was in September when the network went down for 17 hours. Some see these as relatively normal growing pains, but others are concerned it's a sign the network has put too much emphasis on speed and not enough on security. One worry for investors is that Solana is simply not as road-tested as more established smart contract cryptocurrencies. Technical difficulties add to that unease.

What Kind of Corrections is Required?

One of the challenges of crypto investing is that speculation is commonplace. People buy cryptos they don't fully understand because they see the price is going up and hope to catch the wave. This means prices often get driven to unsustainable levels. A related issue is that it isn't as easy to evaluate an asset based on its fundamentals unlike buying stocks. You can't use a crypto's earnings or cash flow to estimate what it might be worth because crypto projects don't need to publish any financial information. There are metrics crypto investors can use, but it is very different from the relatively solid ground of stock investing. There's also a hope that blockchain could transform the way we live, and the whole industry could eventually be worth $100 trillion, 50 times its current value or more. This hype means people feel pressured to get in early, and also makes it difficult to see whether crypto is overpriced.

In Solana's case, for months it seemed as if the sky was the limit. Its price began to rally in July and continued to trend upward until about November. For every critic that warned Solana was getting too hot, another would suggest Solana had the potential to equal if not overtake Ethereum. Ultimately, after an 11,000% growth in 2021, it isn't surprising that Solana's sun sank a little. In some circumstances, adding to your portfolio when prices drop can be a sound investment strategy. But there are some caveats. Firstly, we don't know what will happen to the crypto industry in the coming months — there's no guarantee this is the bottom. Part of the reason crypto prices soared last year was there was so much money available. As those changes and the Fed becomes more hawkish, the crypto market may suffer.