Solana (SOL) isn’t having a great day.

It’s currently among the cryptocurrencies taking the biggest hit, with a 6.80% drop in the last 24 hours, bringing its price down to $180.80 as of Feb. 17. This downturn is even starker when you consider the broader crypto market is only down 1.72%.

So, what’s behind Solana’s recent price slump? Several factors seem to be at play, including:

• Unfortunately, Solana’s name is being linked to a couple of recently surfaced “rug pull” scams, which understandably shakes investor confidence.
• We’re also seeing a continued decrease in Solana’s network activity, with fewer transactions and lower volumes on its decentralized exchanges.
• Technically speaking, there’s a bearish reversal pattern forming on the charts, and it looks like it might be on the verge of breaking down.

Solana’s Name Dragged into Spotlight with Rug-Pull Scams

While broader market sentiment and profit-taking could be contributing to SOL’s current dip, there’s a growing unease about manipulation within the Solana ecosystem.

A recent investigation by Bubblemaps has revealed some concerning connections:

• The individuals behind Libra (LIBRA), a rug-pull scam that uncomfortably involves Argentine President Javier Milei, are reportedly the same group responsible for Melania (MELANIA). Melania, as you might recall, is the memecoin promoted by former US First Lady Melania Trump.

• These schemes allegedly raked in millions through manipulative trading tactics.
• The ill-gotten funds were reportedly shuffled through numerous Solana wallets before being moved to other blockchains, making them harder to trace.
• The 0xcEA wallet in question appears to be linked to other notorious “pump and dump” token launches, including a fake Robinhood (HOOD) token.
• This wave of negative press surrounding Solana could be fueling the current sell-off and accelerating SOL’s price decline.

Memecoin Mania Seems to Be Losing Steam

Crypto analyst Benjamin Cowen points out that Solana has been underperforming against the crypto king, Bitcoin

since the rise of Pump.fun in January 2024, a platform that made launching memecoins incredibly easy.

Here’s what’s important to note:

• Pump.fun’s user-friendly platform lowered the barriers to entry for creating memecoins on Solana. This led to an explosion of memecoins, many of which were lower quality and highly speculative.

Related: 5 dangers to beware when apeing into Solana memecoins

Solana’s Strength Against Ethereum is Fading

Adding to the negative pressure, today’s price drop for Solana is part of a broader trend where it’s been losing ground against Ether

, the leading cryptocurrency of its main competitor, Ethereum.

Here are some key details:

• This underperformance comes right after a significant $772 million exodus of stablecoins like USDT and USDC from the Solana network in just one week, according to data from LookOnChain.
• These outflows are actually the largest compared to other major blockchains in the crypto space.

Lower Activity on Solana Dims Demand for SOL

Further confirming the bearish sentiment around Solana, we’re seeing a drop in overall activity within its ecosystem, based on data from Dune Analytics.

Here’s what you need to know:

• A sharp decline in the number of transactions on the network preceded SOL’s price drop on February 17th.
• The daily transaction count on the Solana blockchain has plummeted from a peak of 71,738 on January 23rd to just 9,303 as of February 17th.

The amount of trading activity (volume) on Solana’s decentralized exchanges has also taken a significant hit in recent weeks.

Solana’s Funding Rates Flip to Negative

Interestingly, even though Solana’s open interest (OI) is actually increasing, its funding rates have turned negative. This combination offers a valuable clue as to why SOL’s price is currently under pressure.

Here’s what you need to understand:

• As the price of SOL fell, the total open interest for Solana futures contracts increased from $5.31 billion to $5.88 billion in a single day.
• Open interest represents the total value of unsettled futures contracts. An increase usually means more traders are opening new positions.

• When open interest rises while the price drops, it often signals that new short positions (bets that SOL’s price will fall) are being opened more aggressively.
• Adding to this bearish picture, Solana’s weekly funding rates have plummeted to -0.27% on Feb. 17, a sharp reversal from the 0.071% seen just the day before.

• Negative funding rates mean that those betting against SOL (shorts) are paying those betting on it (longs) to keep their positions going.
• This is a strong indicator that a larger number of traders are actively betting against SOL, anticipating further price declines.

Could Solana Plunge Another 40%?

The recent price action for Solana appears to be playing out within a classic head-and-shoulders (H&S) pattern, which is often seen as a bearish signal.

Here’s what to consider:

• As of February 17th, SOL looks like it’s potentially forming the “right shoulder” of this pattern, and could be heading towards the neckline support level around $180.50.
• If the price decisively breaks below this $180.50 neckline, the risk of a deeper correction increases significantly. The head-and-shoulders pattern suggests a potential target price around $110, which would be a further drop of over 40% from current levels.
• On the other hand, if SOL manages to hold above this neckline support, we could see a potential rebound back towards the recent high of $215, which would invalidate this bearish head-and-shoulders scenario.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.