Solana, once hyped as "Ethereum's killer", is in trouble. Prices for the SOL token have plunged over 85% from their all-time high, and fears are mounting that the forced liquidation of bankrupt crypto exchange FTX's massive Solana stash could crash prices even further. But not everyone is convinced the bottom is in just yet.

The question on every SOL investor's mind is: how low can it go?

After rallying over 8% this week from its 7-day low of $17.57, Solana sits at $19.04 at the time of writing according to CoinGecko pricing data. While some optimists have cheered the bounce as a sign of recovery, one prominent crypto strategist believes there is more pain ahead for the embattled "Ethereum killer".

Pseudonymous analyst Altcoin Sherpa, who boasts 196,300 followers on social media platform X, told his followers in no uncertain terms that Solana remains stuck in a downtrend. Despite last week's surge, he warned that Solana faces stiff overhead resistance around the $19.50 level. According to the analyst's charting, Solana has been printing a series of lower highs after topping out at $32.30 in July.

"I don't know if the FTX stuff is 'priced in'," said Altcoin Sherpa. "The next few months will be very interesting to see how the price reacts to the large supply on the market."

FTX Collapse Adds 1.1 Billion SOL Tokens to Market

Altcoin Sherpa's comments underscore the precarious position Solana finds itself in following the spectacular collapse of FTX earlier this month. The Bahamas-based crypto exchange, once valued at $32 billion, held a whopping $1.16 billion worth of Solana tokens on its balance sheet at the time of its bankruptcy filing.

With FTX facing a severe liquidity crunch, there are real concerns that a flood of SOL tokens could hit the market as the exchange rushes to raise cash to pay back creditors and customers. This at a time when overall crypto market sentiment remains fragile amid deepening macroeconomic uncertainty.

Already, on-chain data suggests Solana holders are capitulating. According to data from Santiment, Solana addresses holding between 1,000 to 10,000 SOL coins dropped to a 2-year low last week. Typically, such behavior points to average holders losing faith and selling out.

Some crypto investors, however, believe the impact of FTX's Solana reserves is overblown. Chris Burniske, a partner at venture capital firm Placeholder, notes that only around 13% of FTX's massive SOL position is actually liquid. The remaining tokens are likely locked up in staking contracts that prevent them from being freely traded or sold.

Mixed Opinions on Solana's Outlook

With Solana still trading 85% below its all-time high, opinion remains divided on where prices are headed next. In the eyes of Altcoin Sherpa, "This one should take a while to form a bottom." He points to the cluster of resistance around $19.50 as a likely barrier to further upside. If bulls can't reclaim that level soon, he says the critical support to watch is around $14. A break below could open the floodgates to $10 or lower.

Other analysts strike a more constructive tone. While acknowledging the stiff headwinds facing Solana from the FTX fallout, Placeholder's Chris Burniske believes the project still has a promising future. "ETH and BTC both have baggage and have made new ATHs in each cycle," he tweeted, comparing Solana's struggles to early crises at Ethereum and Bitcoin. "Every human is flawed, every institution is flawed and every coin is flawed."

A Turnaround Depends on More Than Technicals

Ultimately, Solana's fate depends on more than chart patterns or lines of resistance. As an innovative blockchain that has attracted hundreds of developers, Solana cannot be valued simply on technical factors alone. Its success will require rebuilding trust and confidence after the FTX disaster, plus delivering on its ambitious vision of a fast, decentralized and censorship-resistant global settlement layer.

On the fundamentals, Solana remains a top 10 project by market cap, with high NFT volumes and a thriving ecosystem of applications. But competition is fierce, with alternative Layer 1 chains like Polygon and Avalanche also vying for market share. Solana's developer team will need to execute flawlessly in 2023 and beyond if its network is to maintain a leadership position.

Regaining its former highs above $250 seems a distant prospect today. But crypto is famous for its volatility, and seasoned investors know that markets can turn on a dime. While more downside can't be ruled out, for risk-tolerant traders Solana may represent a speculative buy at current levels.

Conclusion

Is now the time to buy the dip on Solana?

While risks remain elevated, Solon's 85% price drop from its highs could present a long-term buying opportunity at current levels around $19. Investors should be prudent and only allocate a small portion of their crypto portfolio however, as additional downside is possible depending on how FTX's liquidation impacts supplies.

What will it take for Solana to reclaim its former highs?

Solana will need to deliver tangible improvements to its blockchain capabilities, ecosystem and real-world usage to rebuild confidence and investor trust. Competition is fierce so development velocity and innovative applications will be key. From a market perspective, clarity on FTX's Solana reserves and an improvement in overall crypto sentiment will be needed.

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