Crypto Crash Ends Solana’s 3-Month Rally as Network Activity Tanks 50%

Key Takeaways:

Until Friday’s crash, SOL was up 37% since July, even as network activity plunged nearly 50%. Solana daily transaction volume fell from a peak of 125 million on July 24 to 64 million on Oct. 9. Analysts warn the rally may be driven by hype, not real demand.

Solana (SOL) soared over 37% since late July — up until last Friday’s market-wide crash — but analysts warn the rally may be built on shaky ground.

According to data from CryptoQuant, the daily transaction count plunged 50%, even as the price of SOL rose higher. Solana transaction volume fell from a peak of 125 million on July 24 to around 64 million as of Oct. 9.

Meanwhile, the price of Solana’s native token SOL climbed from $161 to $222 over the same period. Analysts say the mismatch between price and on-chain activity points to a rally driven more by hype than real demand.

“This negative divergence between the price (an emotional and financial indicator) and the network’s fundamental activity (an indicator of real usage) serves as a serious warning,” CryptoQuant said in a recent note.

“In a healthy market, price growth should be supported by an increase in the actual use of the ecosystem.”

Source: CryptoQuant

Negative divergence, a situation where price goes up as network usage weakens, is one of crypto’s oldest red flags. Solana’s case is particularly striking because network activity is often touted as one of its strengths.

The blockchain’s high speed and low fees, estimated at 5,000 TPS and $0.0002 per transaction, respectively, helped it become a home for DeFi apps, NFT projects, and memecoins. Now, that may be changing. As CryptoQuant said:

“The steep drop in transaction count strengthens the hypothesis that the recent price surge may be driven more by market sentiment and speculative activities rather than by a sustainable and organic increase in demand for the Solana network.”

Institutional Appetite Fuels Solana Price Rally

Much of Solana’s network traffic, typically 80% – 90%, consists of “voting” transactions — system-level operations that keep the blockchain running, says the blockchain analytics firm. So, not every decline indicates weaker adoption.

It could merely reflect a change in the voting mechanism, it added. But if the 50% drop in total transactions extends to user activities such as DeFi trades, NFT minting, and fund transfers, SOL’s price rally could crumble, said CryptoQuant.

“If it is determined that this decrease is directly related to user activity, the credibility of the current upward price trend is severely questioned, and it increases the risk of a significant price correction.”

Illia Otychenko, lead analyst at crypto exchange CEX.io, noted that while network activity has slowed, institutional appetite for Solana has rarely been stronger.

Speaking to Cryptonews, Otychenko said the negative divergence shows that Solana’s price surge has been “primarily fueled by non-crypto-native activity, especially TradFi and institutional engagement.”

For example, he said, the amount of SOL held by crypto treasury companies, corporate entities that manage digital assets, jumped more than 670% in the past three months, from 1.8 million to 14 million tokens.

Source: Blockworks

The increase coincides with the buzz around U.S. spot Solana exchange-traded funds (ETFs), which have helped “maintain the bullish momentum.”

Otychenko said that although only around $300 million has flowed into Solana exchange-traded fund products so far, five more ETF filings are pending approval.

Meanwhile, Grayscale introduced staking options for its ETF investors, including those holding Solana, noted by Otychenko as a first among U.S. asset managers, saying:

“This move could significantly boost investor interest once Solana ETFs gain regulatory approval. It might take more time [though] due to the U.S. government shutdown.”

Real Growth or Speculative Surge?

The price of SOL tanked 16% to $185 on Friday after U.S. President Donald Trump announced 100% tariffs on goods from China, “over and above” the existing tariffs. SOL slipped another 5% to $176 on Saturday before rebounding to $193 on Sunday.

The tariffs, which take effect on Nov. 1, sent crypto markets reeling. More than 1.6 million crypto traders were liquidated in 24 hours, erasing $19.3 billion in positions. It’s the biggest such liquidation event in crypto’s short history.

Bitcoin (BTC) slumped below $105,000 for the first time in nearly five months, a drop of over 15%, with $380 billion in market cap wiped out, according to Coingecko. Ether (ETH) fell fastest, losing 21% on the day to $3,460.

Both BTC and ETH had pared some of those losses as of this writing. Otychenko said not everything about Solana’s pre-October 10 rally can be dismissed as speculation.

“There’s genuine network demand supporting Solana’s rally,” he tells Cryptonews. “We’ve seen staking participation hit a new all-time high of $14.4 billion in liquid staking tokens, and a $3 billion expansion in stablecoin supply over the past month.”

But Solana remains “highly sensitive to speculative trends”. Since July, Solana’s overall app revenue has fallen by 40%, while memecoin activity still makes up about half of all app revenue, Otychenko said, citing Blockworks data.

“[The decline] suggests weakening organic activity,” he detailed, adding:

“Even the crypto treasury accumulation that has supported Solana’s price appears largely speculative in nature, riding the general trend rather than grounded in long-term network fundamentals.”

What Happens If Solana Activity Keeps Falling?

If network usage continues to decline, analysts say the price could become increasingly reliant on external catalysts such as ETF approvals, treasury buying, and broader crypto market sentiment, rather than fundamentals.

“Q4 is typically one of the strongest quarters for altcoins, including SOL,” Otychenko said. “So, it could support bullish momentum in the case of a wider rally…but the sustainability of this rally remains questionable.”

Dana Love, president of multi-chain agentic AI platform PoobahAI, said low user activity would likely pressure the price of SOL toward a 20-30% correction during the last three months of this year.

Love drew parallels from history. During the FTX fallout in 2022, Solana crashed by 94% as network activity collapsed, he told Cryptonews, adding:

“A milder version here could shave $40-60 off current levels if decentralized exchange (DEX) volumes slip below $3 billion daily or fee payers decline another 22% (Q1 trend).”

Downside catalysts include bloated meme coin generation, with 12 million daily launches “exacerbating congestion.” Halts in validator rewards due to depleted reserves, along with BNB Chain drawing away $3.3 billion in daily liquidity, are likely to pile additional pressure on the price, he said.

Price-activity divergences like Solana’s aren’t new, according to CEX.io analyst Otychenko. They often occur when a blockchain moves from grassroots user adoption to institutional narrative-building, or vice versa.

The divergences usually resolve in one of two ways. “Either on-chain activity eventually catches up as real adoption follows the hype, or prices correct to align with fundamentals if that demand fails to materialize,” he says.

The challenge for Solana is that its ecosystem remains app-driven, meaning that sustained recovery will depend on whether developers and users stay engaged once the current ETF hype stabilizes, he added.

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