Solana

5 reasons why the Aptos (APT) rally could still have wings

Aptos’ star-studded founders and the market’s disbelief in the rally could further fuel the rise in APT price.

Aptos’ APT reached a new all-time high of $20.39 after posting gains exceeding 400% since the start of 2023. While the rally could just be a pump-and-dump event due to the perception of weak fundamentals, increasing negative sentiment toward the token will likely fuel the prices in the short term.

Let’s explore some of the factors that could be propelling the Aptos price rally.

A rich history and strong investor backing

Aptos is a byproduct of Facebook’s attempt with the Libra blockchain, which regulators forcibly shut down. Two of Libra’s leadership team members, Mo Shaikh and Avery Ching, later found Aptos, a decentralized version of the abandoned blockchain project.

The project is based on the Move programming language and introduces a new class of layer-1 blockchains that will compete against the likes of Solana and Cardano. The primary reasons behind the tailwinds for the APT token include investors’ hope for a technological breakthrough that could finally provide a scalable, secure, decentralized blockchain.

Aptos raised $350 million in 2022, which included a $200 million seed round led by Andreessen Horowitz and a $150 million Series A funding round led by FTX Ventures and Jump Crypto. Later, Binance made a follow-on strategic investment to help boost the Aptos ecosystem.

FTX Ventures’ prominence induces the risk of a sell-off from the defunct entity. In this regard, some investors might be reassured by the involvement of other venture capitalists like Multicoin Capital, Blocktower Capital and Coinbase Ventures. High-volume exchanges like Binance could also soften the blow dealt by FTX and Alameda Researc.

Steady ecosystem development

The Aptos blockchain was launched in October 2022 and is still in the nascent stages of ecosystem development. There are few decentralized finance or nonfungible token projects on the blockchain, and smart contract activity is currently limited. More than 94% of the blockchain transactions are for APT transfers, showing negligible decentralized application activity.

Aptos transaction volume by purpose of transactions. Source: Pinehearst

Development activity has been around average on the blockchain. The number of active developers on Aptos is more than Avalanche and Tezos but behind Solana, Polkadot, Cardano and Ethereum.

Number of active developers working on blockchains and dApps. Source: token terminal

Aptos is not the first project to build a hefty market capitalization without significant on-chain activity. Cardano and Polkadot are prominent examples, where the rise in their native token’s price is primarily led by the superior technology narrative.

However, even in this respect, the total size of the Aptos community is smaller than top layer-1 projects. Cardano and Polkadot have more than 1.3 million Twitter followers on their accounts. At the same time, Avalanche has over 855,600 followers, and Tezos has more than 470,000. Aptos is lagging behind, with a 364,500 follower count.

Moving forward, the efforts of the business development team of Aptos and the performance of the blockchain will likely catalyze future price movements.

Traders’ disbelief could push APT price higher

Given the lack of activity and limited ecosystem growth, the rally in APT has taken the market by surprise. It is not difficult to find tweets hinting at the overblown market capitalization of the token.

$COIN @ $12b market cap
Aptos @ $16b market cap

wtf

— DavidHoffman.bedrock (@TrustlessState) January 25, 2023

However, going against the trend can be risky for sellers. The short-side trade for APT perpetual swaps is getting crowded, as the token has surpassed its October 2022 peak of around $15, which is evident in the negative funding rate for APT.

Funding rate for APT perpetual swaps. Source: Coinglass

It provides an opportunity for buyers to hunt sellers’ liquidation levels by pushing the price up. And in crypto markets, the short squeeze of short orders is realized more often than not.

The sell pressure on APT is limited

APT’s tokenomics limits the selling pressure on the token for the first year from its launch in October 2022. The release schedule of APT delays investor unlocks until October 2023, after which there will be a steep rise in the circulating supply of APT tokens. Until the unlock begins, the only source of inflation is from staking rewards, which is 7% for staked tokens.

Initially, the foundation distributed 2% of the supply to early users and developers. In all probability, users who wanted to sell their APT would have already sold in the three months since its launch.

Kimchi premium

Significant buying interest for APT is coming from the South Korean won trading pair on the UpBit crypto exchange. The exchange constitutes nearly 40% of Aptos’ trading volume. The price of APT on Upbit is trading around 1%–3% higher than the market price, which indicates high demand in the region — hence, the same Kimchi premium.

Aptos spot trading data. Source: Coingecko

There’s a chance that the volumes of Upbit are inflated from wash trading, or it could be an attempt to manipulate the markets. The exchange’s owners have come under the purview of regulators many times in the past. Nevertheless, the buying pressure will likely persist until the Kimchi premium resolves.

While the prices may have started due to a broader positive trend in cryptocurrency prices, it’s taking the shape of a disbelief rally by proving sellers wrong. Until the negative sentiment and Kimchi premium dissolve, the chances of Aptos moving higher are considerable.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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.

Solana DeFi project Friktion shuts down its user platform

Friktion is urging its customers to withdraw assets from the protocol as the front-end shuts down.

Solana decentralized finance (DeFi) platform Friktion is shutting down its user interface and urging customers to withdraw their assets from the protocol, according to a statement on Jan. 26.

The project’s website will no longer deliver the same services, operating in a withdrawal-only mode for all Volts and making deposits unavailable. Friktion’s Volts are structured products for DeFi investments that allow investors to earn a share of the revenue of investment pools, according to the company’s page.

Friktion has made the difficult decision to sunset its user platform, a process beginning with moving all Volts into Withdrawal-Only mode on Friktion’s User Interface https://t.co/zrRbHgr6FV starting 25 Jan 2023.

(1/)

— Friktion⚡ (@friktion_labs) January 27, 2023

The underlying protocol, however, will remain accessible on-chain. As cited by the company, the “tough market for DeFi growth in recent months” was the driving force behind the stakeholders’ decision:

“This decision was not made lightly, as Friktion has successfully navigated a number of challenges in the past, including Luna, FTX, and network outages. The company remains a strong believer in the future of Solana DeFi and will continue to support the ecosystem where it can.”

Friktion’s application reached nearly 20,000 user wallets, passing $3 billion in traded volume and achieving over $160 million in total value locked (TVL) in the first half of 2022 before being impacted by the crypto winter. In November 2022, the company even launched undercollateralized lending targeting institutional investors’ demand for DeFi.

The decision to shut down its user interface comes nearly a year after the company announced it had raised $5.5 million in a funding round in January 2022. Investors in the round included Jump Crypto, DeFiance Capital, Delphi Ventures, Solana Ventures and Tribe Capital among others.

Among the names on the platform’s board was Alameda Research, FTX’s sister company that played a crucial role in the exchange’s collapse in November 2022. Other board members included Genesis Trading, LedgerPrime, CMS Holdings and Orthogonal Trading.

Friktion did not immediately respond to Cointelegraph’s requests for comments.

The state of Solana: Will the layer-1 protocol rise again in 2023?

Despite the latest FTX-related crisis, Solana still has what it takes to win the layer-1 race, according to the head of strategy at the Solana Foundation, Austin Federa.

About two months after the FTX collapse, the Solana network is stronger than ever, according to Austin Federa, head of strategy and communications at the Solana Foundation.

Federa defines the recent SOL token price crash as a short-term market reaction to the perceived connection between Solana and the defunct crypto exchange FTX. While FTX founder Sam Bankman-Fried was invested in many Solana-based projects, Federa pointed out he didn’t have any influence on the network’s operations and fundamentals.

“The external perception was that there was a very close relationship between the Solana network and FTX, which wasn’t the case,” Federa explained in a recent interview with Cointelegraph.

According to a recent report by Electric Capital, the Solana network has been experiencing a record inflow of developers contributing to the ecosystem.

To Federa, developers are increasingly building on the Solana network because of its main value proposition: cheap and fast transactions.

“You can build new types of products and services that aren’t transaction-constrained,” he pointed out.

When asked to address the problem of outages that have plagued the network over the past year, Federa mentioned a number of technical upgrades that should improve the stability of the network in the months to come. One of them is the recent introduction of priority fees, which should reduce the amount of transaction spam on the network.

Federa also mentioned Firedancer, a new validator client that is expected to go live on Solana’s mainnet by the end of 2023.

To find out more about how Solana is recovering after the FTX collapse, check out the full interview on our YouTube channel, and don’t forget to subscribe!

Solana (SOL) price rally could fizzle out due to weak fundamentals

Solana’s usage data and ecosystem development do not support the recent bullish rally, raising the probability of a SOL price correction.

Solana’s (SOL) recent 250% rally to $25 has shocked many investors in the crypto market. At the same time, traders who had eyes on the negative funding rate for SOL in the futures market could have anticipated the bullish move ahead of others.

It’s because excessive negative funding rates, like the one in Solana displayed below, implies that the majority of traders are on the short side, providing an opportunity for buyers to run their stops.

SOL funding rate for perpetual swaps. Source: Coinglass

Regardless of the reason behind the price increase, if enough buyers are interested in joining the bullish move, it can turn into a medium-to-long-term bullish trend. However, Solana’s fundamental and market analysis shows weakness, which will more likely cause a steep correction in the altcoin.

Solana finds a worthy competitor in NFT space

Solana ranks second in terms of NFT trading across blockchain platforms. Ethereum commands the lion’s share of the total NFT trading volume with an 81.6% share. Solana has the second biggest pie with an 11.6% share, according to data from Delphi Digital.

However, the ecosystem received a setback when two of the largest projects in DeGods and y00ts decided to shift away from Solana. The departure of top-performing projects sets a bad precedent for product developers looking to launch NFTs. To date, Ethereum remains the go-to choice for big brands and community projects.

Share of NFT trading volume by blockchains from Dec. 4 to Jan. 4. Source: Delphi Digital

Moreover, Polygon has started gaining traction after forging key partnerships with brands like Reddit, Starbucks, and Meta. DeGods also chose Polygon over Solana after receiving a $3 million grant from Polygon Labs. Polygon’s business development team has been recognized as the best in business.

The usage data from Nansen for Polygon and Solana confirms the diversion where the number of active users on Polygon is spiking while Solana’s usage has been in a downtrend since mid-2022.

NFT traders per week on Polygon (left) and Solana (right). Source: Nansen

Solana has performance and trust issues

Solana’s network became unpopular last year because of frequent and lengthy network outages and hacks. There were more than five outages in 2022 alone. Jump Crypto, a market-making fund, has proposed a solution to the problem by developing a backup validator client, Firedancer. Its real-world performance is yet to be tested.

The total network fees metric is one of the most powerful indicators for analyzing activity across a platform. Solana’s statistics from token terminal showcase a downward trend in the network activity, with weekly active users declining each quarter since 2022.

Total gas spent on Solana. Source: token terminal

Besides downtime, the ecosystem also lost trust among users due to large hacks. The $312 million Wormhole bridge hack is one of the largest crypto exploits of 2022. There was also an incident where $8 million SOL was drained from users’ wallets.

The final blow to trust came after FTX collapsed because FTX-Alameda was the biggest entity backing the Solana ecosystem. The defunct venture capitalist firm and exchange holds around 58 million SOL tokens, or 10.7% of Solana’s total supply. Of these, 6.7 million will be unlocked annually until 2025, followed by 5 million SOL until 2028. These holdings add a significant sell-off risk.

FTX’s collapse also took down Serum, the leading liquidity source for new DeFi applications. In this regard, the failure of the largest decentralized exchange, Mango Markets, also drove out many DeFi users.

Total locked value in Solana’s DeFi ecosystem. Source: DefiLlama

Bearish divergence spotted in SOL/USD chart

In all probability, the recent SOL price surge from $10 to $25 was the result of a short-squeeze in the futures market. The Moving Average Convergence Divergence (MACD) indicator shows a bearish divergence in the daily SOL/USD chart. The Relative Strength Index (RSI) which measures the market’s momentum also moved to oversold territory, raising the possibility of further correction.

SOL/USD 1-day price chart. Source: TradingView

There’s a chance that the present bullish momentum will continue till it meets the resistance at $33, which is the breakdown area from the FTX collapse and where the 50-day Exponential Moving Average currently sits.

The long-to-short ratio in the future market still shows a slight bearish inclination of 51.5% in shorts versus 48.5% in longs. This will likely provide fuel for the last leg up in SOL/USD.

Long to short ratio for SOL futures. Source: Coinglass

Conversely, a breakout above $33 level can cause a surge toward $135. Unless the Solana foundation establishes major partnerships like Polygon, or show improved usage data, the above seems highly unlikely.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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.

21Shares debuts crypto staking ETP on BX Swiss exchange

Arthur Krause, director of ETP product at 21.co, the parent company of 21Shares, emphasized that the Staking Basket ETP does not engage in lending.

Switzerland-based cryptocurrency firm 21Shares is betting on proof-of-stake (PoS) coins by launching a new crypto exchange-traded product (ETP) dedicated to staking.

On Jan. 18, the company launched the 21Shares Staking Basket Index ETP, a crypto staking index designed to track up to 10 PoS cryptocurrencies. The ETP immediately starts trading on the local stock exchange BX Swiss under the ticker STAKE.

At launch, 21Shares’ STAKE ETP tracks six digital assets, including BNB (BNB), Cardano (ADA), Cosmos (ATOM), Polkadot (DOT), Solana (SOL) and Tezos (XTZ). The index will rebalance semi-annually in March and September, following market shifts.

With the addition of STAKE, 21Shares and its parent firm, 21.co, now provide 47 crypto ETP products across 12 exchanges in nine countries. The ETPs aim to provide investors with a safe and secure way to gain crypto exposure by offering an alternative to direct crypto investment.

“STAKE provides value for investors by using the ETP’s assets to generate a passive yield that may offer additional returns by contributing to the network’s security,” said Arthur Krause, director of ETP product at 21.co.

The launch of STAKE ETP comes a few years after 21Shares started experimenting with staking ETPs. In 2019, 21Shares debuted the 21Shares Tezos Staking ETP (AXTZ) and launched the 21Shares Solana Staking ETP (ASOL) in June 2021.

Both products experienced a significant decline in 2022, in line with the bear market. However, the ETPs have performed well in the first weeks of 2023, with year-to-date performance surging 38% for AXTZ and 78% for ASOL.

Krause emphasized that assets like Solana — which is widely linked to the collapsed FTX exchange — have not had any impact on 21Shares’ products, stating:

“Solana — like virtually all other crypto assets — experienced significant price declines in 2022 but suffered no fundamental impairment that would preclude its inclusion in the index. “

STAKE’s launch comes after some major global regulators expressed concerns about cryptocurrency staking. In September 2022, the United States Securities and Exchange Commission chairman, Gary Gensler, argued that crypto staking looks “very similar” to lending, referring to massive failures in the crypto lending industry amid the bear market of 2022. Thailand’s Securities and Exchange Commission also banned crypto firms from offering staking and lending services in September 2022.

“To be clear, the 21Shares Staking Basket ETP does not engage in any lending whatsoever,” Krause emphasized. He added that staking is a crypto-native strategy allowing investors to pledge assets to support the process of validating blockchain transactions, whereas lending is a traditional financial strategy where lenders are compensated for the risk that assets they lend may not be returned.

Polygon enlists Xternity to migrate multiplayer Web3 game from Solana

To help transfer Synergy Land’s resources onto the EVM chain, Xternity proposed a process — via its network migration tool — that can be used to migrate games or projects across chains.

Ethereum layer-2 scaling solution Polygon, joined hands with Xternity, a Web3 gaming development platform, to migrate and onboard a multiplayer Web3 game — Synergy Land — to the Polygon network from Solana.

As blockchain platforms, Solana focuses primarily on scalability and cost-cutting, while Polygon allows for seamless interaction with the Ethereum ecosystem. To help transfer Synergy Land’s resources onto the Ethereum Virtual Machine (EVM) chain, Xternity proposed a process — via its network migration tool — that can be used to migrate games or projects across chains.

Speaking about Xternity’s goal to accelerate Web3 game development, co-founder and CEO Sagi Maman, stated that both players and developers should have the option to choose their own blockchain ecosystems.

For users, the migration process involves linking their Solana-compatible wallets, such as Phantom and MetaMask, burning their assets on Solana and recreating them on Polygon. With its migration to Polygon, Synergy Land aims to onboard Web2 users into Web3 without compromising the community hosted over the older blockchain.

Web3 projects that opt for EVM migration often seek a more extensive user base, greater functionality and credibility of the Ethereum blockchain.

On Jan. 17, the Polygon proof-of-stake chain was scheduled for a hard fork. Speaking to Cointelegraph, a Polygon spokesperson shared minute details about the upgrade:

“The hard fork is coded for the Block >= 38,189,056. No centralized, single actor is going to initiate it. Validators of the network have to update their nodes prior to the indicated block and they are already doing so.”

The upgrade, approved by 87% of the 15 voters of the Polygon Governance Team, aims to reduce gas fee spikes and fix the chain reorganization problem.

Solana Foundation warns about security incident with Mailchimp

According to an email sent to users, an unauthorized actor accessed and exported certain user data from the Solana Foundation’s Mailchimp instance.

Solana Foundation, the non-profit organization of the Solana Network, disclosed on Jan. 14 a security incident involving its email service provider Mailchimp.

According to an email sent to users and seen by Cointelegraph, the Foundation was informed by Mailchimp on Jan. 12 that “an unauthorized actor accessed and exported certain user data from the Solana Foundation’s Mailchimp instance.”

Among the information accessed and exported in the incident were user’s names and Telegram usernames. The Solana Foundation stated:

“Based on the information we have received from Mailchimp, the affected information may have included, inter alia, email addresses, names, and Telegram usernames, in each case only to the extent users provided any such information. Mailchimp advised that the incident did not affect passwords or credit card information.”

The number of users affected by the incident is unclear. There was no official announcement from Solana or Mailchimp regarding the incident at the time of publication. Solana did not immediately respond to Cointelegraph’s request for comment.

Few weeks ago, another crypto company had user’s emails exposed by third-party providers. As reported by Cointelegraph on Dec. 13, hackers gained access to 5,701,649 lines of information pertaining to customers of crypto exchange Gemini, including email addresses and partial phone numbers.

It is not the first time crypto companies have experienced security issues with Mailchimp. In August 2022, the email marketing platform Mailchimp suspended its services to crypto content creators and platforms associated with crypto news or related services. Users started to experience issues logging into accounts, followed by notices of service interruptions.

At the time, Mailchimp stated that “across the tech industry, malicious actors are increasingly deploying an array of sophisticated phishing and social engineering tactics targeting data and information from crypto-related companies.”

The company also said that “in response to a recent attack targeting Mailchimp’s crypto-related users, we’ve taken proactive measures to temporarily suspend account access for accounts where we detected suspicious activity while we investigate the incident further.”

The Beosin Global Web3 Security Report 2022 revealed 167 major security incidents over 2022, with DeFi projects attacked 113 times, which accounted for approx. 67.6% of recorded attacks, Cointelegraph reported.

Solana price rally risks exhaustion after SOL’s 120% pump in two weeks

SOL price has been unable to close above a key resistance level of around $17.50 despite its big rebound in the past two weeks.

Solana (SOL) price is up an impressive 60% since the new year, partially boosted by hype surrounding meme cryptocurrency Bonk (BONK). However, the SOL/USD pair now shows signs of exhaustion, raising anticipations that the token may see a short-term correction in the coming days.

Solana turns overbought

Solana is one of the best performing cryptocurrencies so far in 2023 after being one of the biggest losers in 2022.

On Jan. 9, SOL’s price jumped to as high as $19.50, or around 120% gains in a recovery rally after sliding below $8 on Dec. 29, 2022.

But the price spik also turned Solana into an overbought asset, per its daily relative strength index (RSI) reading above 70, as shown below.

*SOL/USD daily price chart. Source: TradingView*

Traditional investors typically see an overbought RSI as a potential sell signal, given the indicator has historically coincided with a period of buyer exhaustion. As a result, SOL’s price could enter a correction or a sideways consolidation stage to bring back its RSI below 70.

Should it happen, the Solana token’s next downside target appears at around its 50-day exponential moving average (50-day EMA; the red wave) near $14.50.

Meanwhile, an extended selloff could land the price near its 20-day EMA (the green wave) near $13.35, or a 20% correction.

Buy the SOL price dip?

On a longer-timeframe chart, however, SOL eyes a decisive breakout move above its prevailing resistance level of around $17.50.

*SOL/USD weekly price chart. Source: TradingView*

The $17.50 level was instrumental in capping SOL’s downside attempts in the April-July 2021 session. Therefore, a successful flip of the resistance level into support could prompt traders to open new bullish positions toward $25, a level coinciding with SOL’s descending trendline resistance (black).

Conversely, failing to flip the $17.50 resistance level could risk sending SOL back below $8, a possibility if one considers the negative fundamentals surrounding the Solana ecosystem.

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.

Solana price rally risks exhaustion after SOL’s 120% pump in 2 weeks

SOL price has been unable to close above a key resistance level of around $17.50 despite its big rebound in the past two weeks.

The price of Solana’s SOL (SOL) cryptocurrency is up an impressive 60% since the new year, partially boosted by hype surrounding meme cryptocurrency Bonk. However, the SOL/USD pair now shows signs of exhaustion, raising anticipation that the token may see a short-term correction in the coming days.

SOL turns overbought

SOL has been one of the best-performing cryptocurrencies so far in 2023, after being one of the biggest losers in 2022.

On Jan. 9, SOL’s price jumped to as high as $19.50, or gains of around 120%, in a recovery rally after sliding below $8 on Dec. 29, 2022.

But the price spike also turned SOL into an overbought asset, per its daily relative strength index (RSI) reading above 70, as shown below.

Traditional investors typically see an overbought RSI as a potential sell signal, given that the indicator has historically coincided with a period of buyer exhaustion. As a result, SOL’s price could enter a correction or a sideways consolidation stage to bring its RSI back below 70.

Should that happen, the Solana token’s next downside target appears at around its 50-day exponential moving average (EMA) — the red wave — near $14.50.

Meanwhile, an extended sell-off could land the price near its 20-day EMA — the green wave — near $13.35, or a 20% correction.

Buy the SOL price dip?

On a longer-timeframe chart, however, SOL eyes a decisive breakout move above its prevailing resistance level of around $17.50.

The $17.50 level was instrumental in capping SOL’s downside attempts in the April–July 2021 session. Therefore, a successful flip of the resistance level into support could prompt traders to open new bullish positions toward $25, a level coinciding with SOL’s descending trendline resistance (black).

Conversely, failing to flip the $17.50 resistance level could risk sending SOL back below $8, a possibility if one considers the negative fundamentals surrounding the Solana ecosystem.

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.

5 signs that an altcoin bull run could be underway

Record-low volatility and potentially positive macroeconomic data are providing crypto traders with a few opportunities.

While 2022 ended on a grim note with macro headwinds providing little hope of a revival in 2023, the start of a new year has surprised bears with a surge in Bitcoin (BTC), Ether (ETH) and altcoin prices. The period of sparse volatility in the crypto market appears to be ending with a breakout to the upside.

The increase has been particularly striking in some altcoins such as Lido (LIDO), Solana (SOL), and Cardano (ADA). The primary factors promoting the spike in these coins are the upcoming Ethereum Shanghai update (for LIDO) and the negative funding rate in the futures market, especially for SOL. The negative rates implies that most traders are holding short positions, giving an opportunity for whale buyers to run their stop losses. Funding rates for some other tokens remain exposed to a short squeeze.

Moreover, the new year has also seen the re-emergence of the degen gambling that had taken a back seat after the collapse of FTX in November. A memecoin price surge is evidence of the residual degen spirit. Technically, the total market capitalization of altcoins has surpassed a key technical resistance level as bullish momentum builds.

While the sustainability of the bull run is questionable due to the broader trend remaining bearish, the fledgling uptrend could still bring some pain for late sellers. The five primary factors influencing altcoin prices are:

Job market data revives the hope of a soft landing

Defying Dow Jones estimates for an additional 200,000 nonfarm payrolls added in December and market expectations of a slowdown, the labor market report showed tha230,000 were added, a 0.2% increase in employment.

A strong jobs market goes against the prevalent recession claims and acts as a catalyst for a risk-on rally. The Consumer Price Index (CPI) reading for December coming out on Jan. 12 will be instrumental in either building on the newfound bullish sentiment or returning to negative sentiments.

If inflation continued its downtrend, with December’s CPI print below 7.7%, then the market’s confidence in a soft landing could increase. However, if inflation rose in December, then the chances of a higher rate hike in the U.S. Federal Reserve meeting toward the end of January increase, risking a steep correction.

Traders hunt for perpetual swaps with negative funding rates

As the spot trading volume and liquidity on cryptocurrency exchanges dried up toward the year-end, especially during the holiday season, futures markets gained more influence in moving the prices. A contrarian price reaction against a crowded trade position is highly likely.

Solana’s latest surge in prices is clear evidence of short-squeeze driving prices. Over the weekend, $200 million in SOL shorts were liquidated as its price surged over 27% from the Jan. 6 low of $13. According to independent market analyst Alex Kruger, “SOL still has room to go but the outperformance phase is mostly behind.”

*Funding rate for SOL perpetual swaps. Source: Coinglass*

While Solana’s pump might be close to over, the majority of traders are still net short on numerous altcoins like Apecoin (APE), Tron (TRX), Bitcoin Cash (BCH) and Gala Games (GALA). This provides an opportunity for buyers to push the price up and hunt the stop-loss liquidity of perpetual swap sellers.

*Funding rate for altcoins across crypto exchanges. Source: Coinglass*

Meme coins pump, then dump

In the first week of January, a Solana-based memecoin named BONK experienced a whopping 25x surge. The rise symbolized the degenerate gambling spirit that was prevalent during the 2021 to 2022 bull run. Bear markets, on the other hand, tend to promote caution among traders.

Despite BONK’s eventual price collapse, the successful pump-and-dump playout of meme coins like it suggest that some traders are still indulging in high-risk plays.

Positive technical breakout

The altcoin market capitalization broke above the 50-day exponential moving average (EMA) at $465 billion. Buyers will likely target the 100-day EMA at $563 billion — an expected average 20% gain across the tokens. Technical traders would look to tap these key levels before reversal begins.

The relative strength indicator (RSI) for altcoin market capitalization also moved into bullish territory, increasing above the 60-point resistance. Furthermore, if buyers build support above the 50-day EMA with positive volumes, the short-term uptrend could extend toward the end of Q1 2023.

*Total* *altcoin* *market capitalization (excluding Bitcoin). Source: TradingView*

Historical trends and positive sentiment spike

The sustainability of the bullish altcoin run is questionable, especially since the underlying trend remains bearish. It’s difficult to identify the fundamental catalyst supporting this bull run, and Bitcoin’s price trades below its resistance of between $18,200 and $19,000. Thus, the uptrend will likely fade as buyers get exhausted.

If we look at previous crypto cycles, altcoins outperformed Bitcoin in a bull run, and the following cooldown period saw a cross-over with Bitcoin leading the crypto market gains.

The recent parabolic run of 2021 played out similarly, with altcoins outperforming Bitcoin. However, the correction period hasn’t seen a wipeout of the altcoin market relative to Bitcoin.

Both altcoin market capitalization and Bitcoin’s price have lost 75% of their value from the peak, as opposed to altcoin losses surpassing Bitcoin.

*Altcoins outperform Bitcoin during bull markets. Source: TradingView*

An exception to the above rule can be due to Ether’s increasing dominance in the market. Ethereum has maintained its market dominance of around 20% with technical breakthroughs such as the shift to an energy-friendly proof-of-stake mechanism and reduced inflation supporting its price strongly despite the negative trend. Still, a deeper correction in the broader altcoin market capitalization cannot be ruled out.

*Bitcoin (orange) and Ethereum (blue) dominance over the crypto market. Source: TradingView*

Lately, social media circles have witnessed a revival of positive sentiment. Santiment data shows that the social media mentions of keywords like “buy the dip” and “bottom” spiked on platforms like Twitter, Reddit, and Telegram. Usually, a positive sentiment spike is a top indicator suggesting a reversal of the bullish price trend.

*Social media volume for “buy the dip” and “bottom” key words. Source: Santiment*

One of the first hurdles will be supporting the price after a wipeout of short orders. Being two of the first tokens to surge, Solana and Cardano could provide clues that point toward the end of the uptrend.

If the price of SOL breaks below support at $14.33 with a simultaneous drop below $0.30 for ADA, it could be a warning sign of the bull’s exhaustion.

At the same time, tokens like LIDO that benefit from the liquid staking derivative narrative could continue to rise until Ethereum core developers implement the Shanghai upgrade. Macro market movers such as the CPI print and Bitcoin’s price action will also play a crucial role in sustaining an altcoin bull run.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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.