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After weeks of trading in a tight range, Solana (SOL) finally broke out, reaching a two-month high of $164 on May 8. The sudden surge pushed SOL’s Relative Strength Index (RSI) deep into overbought territory, signaling a potential blow-off top. Sensing a prime short opportunity, bearish traders rushed in, stacking leveraged positions to capitalize on a potential reversal.
The Great Bear Fade: A Textbook Short Squeeze
However, the bears got caught off guard. Rather than a sharp reversal, the market executed a classic short squeeze. Nearly $20 million in short positions were liquidated, as SOL rallied above the $170 resistance level – a key psychological threshold now flipped into support. According to Lookonchain data, one notable trader opened a 20x leveraged short at $164.9, only to face a tight liquidation level at $172.96. With SOL trading at $171.87, that position is on the brink of a forced exit, potentially fueling another squeeze.
Someone just deposited 1.21M $USDC into Hyperliquid and opened a 20x short on $SOL at $164.9.
— Lookonchain (@lookonchain) May 9, 2025
The position reached 97,500 $SOL($16M)), with a liquidation price of $172.96.https://t.co/2bEi8HjzSx pic.twitter.com/gYOpQixxzU
Solana’s Risk Zone: Is a Reversal Imminent?
Despite the bullish momentum, cracks are emerging. Solana’s active address count has plummeted from 6.10 million to 5.40 million in a single day – an 11.46% drop, indicating waning demand. Additionally, Solana’s Market Value to Realized Value (MVRV) ratio has climbed above 1, suggesting SOL is trading well above its realized cost basis.
This overvaluation metric could prompt a wave of profit-taking, setting the stage for a potential reversal. With bears still lurking and structural demand showing signs of weakness, the question remains – is Solana’s recent surge the start of a sustained breakout, or just another trap for overzealous bulls?
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
Also Read: SOL Strategies Explores Tokenized Shares on Solana
I’m your translator between the financial Old World and the new frontier of crypto. After a career demystifying economics and markets, I enjoy elucidating crypto – from investment risks to earth-shaking potential. Let’s explore!
