SOL Futures Open Interest Surges to 2-Year Highs as Institutional Investors Show Growing Interest

Solana's SOL (SOL) failed to hold its bullish momentum after gaining 10% between Monday and Thursday. The cryptocurrency has shown weakness

Key takeaways:

* SOL’s futures open interest surged to a 2-year high, reflecting growing institutional interest.

* Rising competition from other blockchains and neutral funding rates continue to dampen SOL’s bullish momentum.

Solana’s SOL (SOL) failed to sustain its bullish momentum after gaining 10% between Monday and Thursday. The cryptocurrency has encountered resistance in breaking through the $180 level despite several attempts throughout May, but traders’ increasing interest in leveraged positions could pave the way for a move toward $200 and beyond.

On Wednesday, total open interest on SOL futures reached 46.2 million SOL, the highest in over two years and a 22% increase from the previous month. Naturally, every SOL bought by an optimist is sold by another trader with a bearish outlook, but the surge in activity signals heightened participation from institutional investors.

With $7.4 billion in open futures positions, SOL is attracting significant attention from sophisticated market participants, who are seeking out new opportunities. This liquidity spawns arbitrage strategies, like the “carry trade,” where investors buy SOL in the spot market and simultaneously sell the futures contract. A liquid and actively traded derivatives market supports these trades.

Despite these developments, many SOL investors are likely to be disappointed as the coin is currently trading at $155, a level that remains substantially lower than the $294 all-time high. In comparison, the total crypto market cap is just 12% below its record peak. Furthermore, the sharp decline in Solana network activity has prompted investors to lower their expectations for future SOL gains, rendering a return to $200 less probable.

Decentralized exchange (DEX) activity on Solana dropped to $10.5 billion per week, down from $29.2 billion over the past 30 days. More significantly, the 50% DEX market share peak attained in early January failed to sustain itself, especially as trading volumes surged on BNB Chain and Hyperliquid emerged as the clear leader in perpetual futures.

Unlike the Ethereum ecosystem, which is known for more friction due to its reliance on layer-2 scaling solutions, BNB Chain competes directly with Solana in offering low fees and integrates the necessary tools for launching new tokens. Its seamless connection with the Binance exchange provides BNB Chain with an edge in terms of the user experience.

SOL funding neutral as competition dampens investor confidence

To gauge whether traders are becoming bearish on SOL due to its recent price underperformance and the increasing competition, it’s helpful to examine the perpetual futures funding rates. In a neutral market, funding should range from 5% to 15% annually, indicating that buyers (longs) are paying a premium to maintain their positions.

The funding rate for SOL has been fluctuating between neutral and slightly bearish levels, quickly recovering from the -7% reached on Saturday. Crucially, SOL futures have failed to sustain above the 15% annualized funding threshold over the past 30 days, signaling a lack of strong bullish sentiment.

Speculation around the approval of a spot exchange-traded fund (ETF) for SOL in the United States by the Securities and Exchange Commission is the most significant factor that could influence the cryptocurrency’s price movements in the short term. Bloomberg analysts are optimistic that the SEC will greenlight ETFs for Litecoin (LTC), SOL, and XRP by the end of the year.

At present, there is no clear indication that SOL is on track to reach $200, especially considering the neutral funding rates observed in perpetual futures. Additionally, the escalating competition among decentralized applications has likely played a role in dampening investor anticipation for significant gains in SOL.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.