Solana in Crisis Amidst Possible Investigation & Transaction Failures: is this the End for the Popular Altcoin?

The blockchain and cryptocurrency sector has witnessed substantial expansion, with the Solana ecosystem ascending as a prominent figure within this burgeoning space.

Initiated in 2020, Solana endeavors to offer a high-throughput, scalable infrastructure tailored for decentralised applications (dApps) and a wide array of cryptocurrency functionalities.

It claims the capacity to facilitate over 65,000 transactions per second (TPS), positioning itself as a robust competitor to Ethereum.

Solana has garnered attention, particularly through its native token, SOL, which reached a peak value of $260 in November 2021.

However, at the time of writing, SOL has retreated to $133.59, marking a substantial decrease of nearly 50%.

This downturn is further compounded by an over 21% drop in the past month alone.

In addition, the Solana network has encountered its share of hurdles in 2022, including service interruptions that have impeded its operations and dented investor trust.

The fallout from the FTX exchange, which had close ties to Solana, has added to these woes, contributing to a precipitous decline in SOL's valuation.

Although there has been a recovery in 2023, the conclusion of the second quarter of 2024 does not augur well for the ecosystem.

Alleged Criminal Investigation on Solana?

A social media post on X by Crypto Bitlord, a market expert with over 300,000 followers, has fuelled these rumors.

Although no concrete details regarding the jurisdiction or entity behind the purported investigation have been revealed, the United States (US) has been particularly active in its scrutiny of the cryptocurrency sector, especially in the wake of the FTX exchange's collapse in late 2022.

Crypto Bitlord, with a background that includes early involvement in the Ethereum ICO and Bitcoin adoption in 2012, as well as support for projects like ADA and Dot/KUSAMA from their inception, has a history of spotting trends.

His portfolio includes backing successful meme coins such as Shiba Inu (SHIB), Floki (FLOKI), and Pepe Coin (PEPE).

However, his credibility was somewhat marred by a controversial incident in November 2023, when a project he launched, MOLLY, raised $5 million before its value plummeted, leading to accusations of a rug pull.

The veracity of the rumors surrounding a Solana investigation is still in question.

The nature of the alleged investigation and the agency spearheading it remain shrouded in mystery.

Speculation suggests a connection to the SEC, following its classification of Solana as a security, which could be a focal point for any potential inquiry.

Investigation Rumours Gave Raise to Scepticism

The reports have sown doubt within the Solana community, with some members dismissing the allegations as unfounded.

One X user speculated that the claims might stem from personal losses or liquidations, suggesting an ulterior motive to manipulate the market.

Another labelled the situation as "the FUD of the decade," indicating a belief that it is merely fear, uncertainty, and doubt being spread without merit.

In response to the scepticism, Bitlord issued a caution, stating, "Don't cry when SOL is $3 again," suggesting a potential further decline in the token's value.

He also expressed sympathy for those who might be adversely affected, noting:

"It's sad when everyday people get caught up in things they don't understand and lose money from it."

However, without additional information regarding the purported investigation, these assertions remain speculative.

As of now, Solana's founders have not issued any official statements to address the rumours.

Adding to the discourse, Shiba Inu's marketing lead, Lucie, voiced her own concerns on X, warning the community about potential scams involving compromised celebrity accounts sharing SOL addresses.

These developments have intensified the scrutiny surrounding the Solana ecosystem, but they do not substantiate the rumours originating from Crypto Bitlord.

SOL Dipping Since the Past Month

The Solana token has seen a significant price drop over the past month, mirroring a broader market downturn.

This decline has sparked further concern as whispers of a potential investigation into the blockchain platform have begun to circulate.

The Solana token has sustained considerable losses over different periods, with declines exceeding 9%, 18%, and 22% within the last seven, 14, and 30 days, respectively.

When the rumours surfaced, the Solana price plummeted by nearly 8% to $124.

While the drop may not be directly attributable to the rumours, it could have been influenced by them in conjunction with other market dynamics.

Moreover, SOL encountered a substantial selloff.

Data from Coinglass indicates that Solana witnessed $10.75 million in long liquidations, as investors, seized by panic, rushed to sell off their positions to minimise losses.

The Solana price is now at a critical juncture as it nears pivotal support levels.

Presently, SOL is trading slightly above a four-month support level, which previously marked the onset of an uptrend that culminated in a yearly peak of $210 in mid-March.

Should selling pressure escalate and this support level be breached, SOL could retrace to $117, which represents the next significant mid-term support level.

Further support levels for SOL, in the event of a prolonged bearish trend, are positioned at $109 and $102.

Bullish investors aiming to safeguard Solana from falling below $100 should closely monitor these levels.

As previously noted, SOL has receded to $133.59, reflecting an over 21% decline in the past month.

Solana Mirrors Etheruem's Scrutiny

The recent speculations surrounding Solana's potential investigation echo the recent scrutiny faced by Ethereum (ETH).

Earlier this month, ConsenSys, a prominent Ethereum software company, engaged with the US Securities & Exchange Commission (SEC) to inquire about the status of its investigation into Ethereum 2.0.

In a letter sent earlier in the month, ConsenSys sought to ascertain whether the approval of a Spot Ethereum ETF would lead to the conclusion of the ongoing investigation.

Subsequently, just a week back, ConsenSys announced that the SEC had terminated its investigation into Ethereum 2.0, confirming that the sale of ETH is not deemed a securities transaction.

Following the SEC closure of its 14-month investigation into Ethereum, Solana became the focal point of discussions regarding security classification.

However, these discussions were fleeting and did not garner substantial attention until the recent speculative surge.

The resolution of the Ethereum investigation is viewed as a triumph but also underscores the persistent regulatory hurdles confronting the cryptocurrency sector.

ConsenSys has emphasized the necessity of clear guidelines for the continued development of crypto technologies and innovations.

The recent closure of the investigation in Ethereum's favour has bolstered investor confidence.

Conversely, legal expert Drew Hinkes posits that Solana may not share the same positive outcome.

He suggests that other tokens, including those utilising Proof of Stake (PoS) mechanisms like Solana and Polygon, which have presumably not undergone the same level of investigation as Ethereum 2.0, may have distinct characteristics in terms of creation, distribution, and other parameters.

This could potentially influence their regulatory treatment.

Solana Plagued by Dropped Transactions & Congestion Issues

Solana persists in grappling with significant challenges, notably a high rate of transaction failures, with roughly 75% of non-vote transactions failing on 4 April amidst a surge in meme coin demand.

This has led to user frustration, characterised by reports of diminished transaction reliability and a degraded overall experience on the Solana network.

Despite efforts to mitigate congestion, Solana CEO Anatoly Yakovenko has voiced frustration over the network's persistent struggle with bug resolution and stability maintenance.

These elements collectively suggest an ongoing battle for Solana in the face of market volatility and regulatory scrutiny.

Following the approval of Ethereum ETFs on 20 May, Solana node validators have promptly withdrawn funds from staking contracts.

Such withdrawals from a PoS network like Solana often precipitate short-term price declines, reflecting a bearish sentiment for Solana amid recent market dynamics.

The network congestion on Solana has contributed to a 23% decline over the course of a month, prompting investors to redirect their attention towards newer altcoins built on more stable blockchain networks.

Solana: Security or Not?

The SEC had explicitly designated 12 tokens as securities in its legal action against Binance, its CEO Changpeng Zhao (CZ), and Binance US.

The 12 tokens in question include BNB (BNB), Binance USD stablecoin (BUSD), Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Cosmos Hub (ATOM), The Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS), and Coti (COTI).

Despite the SEC's classification, the Solana Foundation, the non-profit organisation responsible for overseeing the Solana network, vehemently disputes the characterisation of SOL as a security.

The Foundation emphasizes its openness to continued dialogue with policymakers, viewing them as constructive partners in the pursuit of regulatory clarity that would benefit the thousands of entrepreneurs in the US engaged in digital asset development.

As the cryptocurrency community awaits further developments, Solana's future remains uncertain, suspended in a state of speculation and anticipation.