Solana Enters Bear Territory: Realized Loss Now Outweighs Profit

On-chain data shows the Solana Realized Profit/Loss Ratio has dipped into the loss-taking zone recently, a sign that SOL liquidity has thinned.

Solana Liquidity Back At Levels Associated With Bear Markets

According to data from on-chain analytics firm Glassnode, Solana liquidity has recently contracted to levels that are typically witnessed in a bear market. There are many ways “liquidity” of a cryptocurrency can be assessed, but here, Glassnode has used the Realized Profit/Loss Ratio.

This indicator measures, as its name already implies, the ratio between the amount of profit and loss that the SOL investors as a whole are realizing through their transactions.

The metric works by going through the transaction history of each coin being sold on the network to see what price it was last moved at. If the previous transaction price was less than the latest selling price for any token, then the indicator considers its sale to have realized a net gain. Similarly, the metric adds transactions to the loss-taking category in the opposite case.

The exact amount of profit or loss realized in any transfer is naturally equal to the difference between the latest price and last selling value. The indicator adds up this value for both categories and determines the ratio.

Now, here is the chart shared by the analytics firm that shows the trend in the 30-day moving average (MA) of the Solana Realized Profit/Loss over the last few years:

As displayed in the above graph, the Solana Realized Profit/Loss witnessed a sharp spike during the price rally in September. This suggests that profit taking saw an explosion. The indicator maintained at high levels for a while, but following the price peak in October, its value went downhill fast.

In November, the Realized Profit/Loss breached below the 1 mark as SOL plummeted. A value less than 1 on the metric implies loss realization is outpacing profit taking. Since this breakdown, the indicator has only gone lower inside the loss-taking region, a sign investor capitulation has only been becoming more dominant.

Glassnode has noted that the trend signals “liquidity has contracted back to levels typically seen in deep bear markets.” During the 2022 bear market, Solana remained in these conditions for a few months before its price found a bottom.

It now remains to be seen whether the low liquidity will also persist for the cryptocurrency this time, or if the fall into the loss region is only a temporary one for the indicator.