Solana (SOL) began 2025 with a tough start, witnessing a significant decline in Q1. The asset lost 34% of its value, wiping out over $100 billion in market capitalization, which reversed all of the gains made during the pre-election hype. As the cryptocurrency market moves into Q2, questions remain: will Solana experience a resurgence, or are the risks of further losses too great?

Solana’s Tough Q1 and Risk of Capitulation

Q1 proved to be a challenging period for Solana, and its performance stood out as one of the most severe among major cryptocurrencies. While many assets struggled due to macroeconomic factors, Solana’s downturn was especially pronounced. As the price of SOL has dropped back to its September 2024 lows, market sentiment has turned more cautious, with a lack of clear support levels on its price chart. The absence of strong bullish demand could signal that further declines are possible, especially if investor sentiment continues to weaken.

As of now, only 32% of Solana’s circulating supply is in profit, a two-year high. This imbalance between profits and losses increases the likelihood of a sell-off, as many holders who are currently underwater may be inclined to capitulate, especially during times of heightened market volatility. The Net Unrealized Profit and Loss (NUPL) metric shows that short-term holders are entering a capitulation phase, which often triggers waves of sell-offs.

If these selling pressures continue, there is a risk that Solana could experience significant liquidity outflows from its network. Historically, Solana has only found temporary relief when the market moves into a fear-of-missing-out (FOMO) phase, where investor confidence and demand for the asset surge. Without this shift, the risk of continued downward pressure remains.

The Solana/BTC Pair and Bearish Signals

Another factor weighing on Solana’s outlook is its performance relative to Bitcoin (BTC). The SOL/BTC pair has lost its mid-March gains, reflecting a broader trend of Solana underperforming compared to Bitcoin. The Moving Average Convergence Divergence (MACD) indicator is showing signs of flipping bearish, which suggests the potential for further declines in Solana’s price. If this pattern continues, Solana could soon test its $115 support level.

Declining Network Activity and Investor Sentiment

Solana’s network activity has also taken a hit in recent months. At the start of Q1, Solana saw a surge in new addresses, with 8 million new users joining the network by mid-January. However, momentum quickly fizzled out, and the number of new addresses has since dropped to a six-month low of just 312,000. This decline in user activity could signal waning interest in the Solana ecosystem.

In addition, Solana had experienced notable spikes in staking and decentralized exchange (DEX) volume earlier in the quarter, indicating a healthy level of investor engagement. However, both of these metrics have fallen significantly since, now sitting well below their pre-election highs. This decline in key indicators adds to the bearish outlook for the asset, as the lack of fresh spot accumulation could indicate that buyers are hesitant to re-enter the market.

Q2 Outlook: Is a Recovery Likely?

Given the current sentiment, a recovery for Solana in Q2 appears increasingly uncertain. The combination of rising capitulation fears, declining network activity, and a lack of clear catalysts to raise new demand suggests that Solana may struggle to regain its footing. Unless there is a significant shift in investor sentiment or a new development that drives demand, expectations for a bullish Q2 seem far-fetched.

Solana’s price is at a crucial juncture. Without a change in momentum, the asset could fail to maintain its $115 support, which would increase the risk of further declines. While it’s possible for Solana to recover if market conditions improve, the chances of a sharp rebound seem limited at the moment.

Conclusion

Solana’s performance in Q1 has cast a shadow of uncertainty over its future prospects, and without strong catalysts, the asset could continue to struggle in Q2. With declining network activity and a lack of bullish sentiment, the risk of further declines remains high. Investors will need to closely monitor any shifts in market conditions that could fuel a resurgence in demand. Until then, Solana’s future remains precarious.