Solana (SOL) ticked modestly lower on July 20 after testing a critical technical resistance, suggesting further pullback moves in the coming weeks.
SOL price eyes 50% wipeout
SOL’s price decreased by over 4% to $44 after failing to breach a multi-week ascending trendline resistance. Interestingly, this resistance level comes as a part of what appears to be a bearish continuation pattern dubbed the “bear flag.”
A previous test of the same resistance trendline in late June had preceded a 30%-plus price drop, illustrating a higher distribution sentiment among SOL traders near the level. Therefore, the latest pullback from the same range could lead to an extended downside retracement.
SOL/USD daily price chart. Source: TradingView
Meanwhile, the bear flag’s lower trendline has been capping SOL’s sharp pullback moves. As a result, SOL’s extended correction scenario could have its price hit the support level, now near $35.40 – a 20% drop from current price levels.
Additionally, a decisive close below the lower trendline would risk triggering the bear flag breakdown setup, wherein the price falls by as much as the height of the downtrend (called “flagpole”) that preceded the flag’s formation.
SOL/USD daily price chart featuring “bear flag” breakdown scenario. Source: TradingView
That puts SOL on the road to levels near $21 by September, down over 50% from today’s price.
What experts are saying about Solana
The bear flag setup appears after SOL’s 80%-plus price rally since June 14, primarily driven by a similar recovery across the crypto market.
For instance, Ether (ETH), Solana’s top rival in the smart contract space, has risen over 85% more than a month after bottoming out locally at $880. Similarly, Bitcoin (BTC) is up 35% in the same period.
SOL/USD and BTC/USD daily correlation coefficient at 0.97. Source: TradingView
Independent market analyst Altcoin Sherpa sees SOL’s price rising to the $60-$80 area in 2022 if Bitcoin continues rising.
Conversely, Andrey Diyakono, chief commercial officer at Choise, notes that demand for SOL could drop due to Ethereum’s transition to proof-of-stake in September.
“The new Ethereum protocol has the same advantages as Solana, and investors may choose to stick with Ethereum should the high gas fees and scalability woes be solved,” Diyakono explained.
Paweł Łaskarzewski, co-CEO at Synapse Network, fears SOL’s ongoing price rally could be a bull trap, noting that SOL, alongside the rest of the crypto market, still faces macro hurdles led by higher inflation and rising lending rates.
“We might see small ups on the price of Solana but due to the current market state, I would not expect any big changes”
Solana funds add $110.8M in 2022
Meanwhile, institutional interest in Solana continues to look better compared to Ethereum, according to CoinShares’ latest weekly report.
Net flows into crypto funds in 2022 (by assets). Source: CoinShares
Notably, Solana-backed funds have attracted $110.8 million into its coffers since the beginning of this year. In comparison, Ethereum-based investment vehicles have witnessed withdrawals worth $446.1 million from their reserves in the same period, including $2.5 million in the week ending July 15.
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, you should conduct your own research when making a decision.