Why is Solana (SOL) price up this week?

    2023.12.25 | exchangesranking | 185onlookers

    Solana (SOL) price has jumped by more than 60% in the week ending Dec. 24, hitting $118 for the first time in eighteen months. 

    Why is SOL's price up this week?

    Solana's price pump this week coincides with a gas fee increase in the ecosystem of its layer-one blockchain rival, Ethereum (ETH).

    Notably, the cost to carry out a transaction on the Ethereum blockchain briefly crossed above $10 earlier this week, with some users even reporting being asked $150 in fees to conduct a $50 worth of transaction.

    Ethereum gas fees 7-day performance. Source: EtherScan.io

    Ethereum gas fees have declined by more than 50% from its week-to-date high. Nonetheless, its brief rise has prompted users to explore alternative blockchain platforms with lower transaction costs. This uptick in user activity likely had a positive impact on Solana's price over the past few months.

    For instance, active addresses on Solana have increased by nearly 400% in the last three months compared to a 3% increase on Ethereum, according to Messari.

    Solana vs. Ethereum daily active addresses. Source: Messari/Artemis

    Solana airdrops boost user activity

    Of course, recent airdrops atop the Solana blockchain, especially that of the Bonk memecoin, are hugely responsible for the surge in its daily active addresses and price. Additionally, Solana's decentralized exchange volume has risen to the top this week.

    Solana DEX volume in the week beginning Dec. 17. Source: Defi Llama

    Solana's lower transaction costs facilitate the creation of new addresses, particularly beneficial for airdrop hunters. For instance, Solana’s fees have been consistently under $0.01, according to CoinCodex. Though, the lower fees do have costs of their own, according to some critics on social media.

    Solana attracts institutional capital

    Solana's rise this week succeeds a winning week in terms of fund flows.

    Notably, Solana-based investment funds attracted $10.6 million in the week ending Dec. 16, beating inflows of top rivals like Bitcoin (BTC) and Ethereum. In December, Solana funds have witnessed $14.1 million in inflows, the highest in the crypto sector.

    Fund flow by assets. Source: CoinShares

    Solana price technicals

    Solana's price rise this week may be running out of steam, however, technical indicators suggest.

    For instance, on the three-day chart, SOL's price has formed higher highs, but its relative strength indicator (RSI) and volumes have made lower highs. Technically, this deviation hints at a growing bearish divergence, indicating a potential selloff ahead.

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

    If the bears prevail, SOL's price risks decline toward its 0.382 Fib line near $100 by New Year's. A decisive close below $100 could send the price toward the 0.236 Fib line near $66.

    Conversely, a close above the 0.5 Fib line at around $130 may send the price rallying toward the 0.618 Fib line near $157.50.

    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.

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