Solana (SOL) fell to a two-week low near $35.50 on July 26, reflecting bearish moves in other cryptocurrency markets. However, technical data suggests that Solana’s price is flirting with prospects for a 40% rise in August.

SOL reaches key inflection point

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Ironically, Solana’s bullish setup emerges from a classic bearish continuation pattern.

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On the daily chart, the price of SOL is consolidating inside what looks like a bear flag, a technical pattern that develops during a downtrend and resolves after the instrument breaks out with further price declines.

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The so-called breakdown of the bear flag has not happened yet. Instead, the SOL holds the lower trendline as support, increasing the likelihood of a sharp bounce to the upper trendline, as shown in the chart below.

SOL/USD daily chart with a bearish flag. Source: Trading View

A bounce setup exposes SOL to a potential rally to $49.50 in August, up 40% from today’s price. The $49-$50 level served as both support and resistance in May.

Solana Network Performance Still a Concern – Researcher

A potential bear flag bounce will serve as temporary relief for Solana’s bulls, given that the overall SOL bias remains skewed to the downside.

Macro forces such as the Fed’s hawkish monetary policy and the collapse of the $40 billion “algorithmic stablecoin” Terra project have sent the cryptocurrency market into a tailspin. As a result, Solana, like any other risky asset, experienced a decline in financials and network usage in 2022.

For example, the average number of daily transactions on the Solana blockchain fell by 17.6% in the second quarter of 2022 compared to the previous quarter. data from Messari.

Meanwhile, Solana’s revenue fell 44.4% quarter-on-quarter (including due to repeated network outages).

Solana Q2/2022 Financial Review. Source: Messari

“As seen in 2021 and throughout the first and second quarters, declining network performance reduces network usage and lowers the ongoing revenue stream from the network,” noted James Trautman, researcher at Messari, adding:

“If Solana continues to experience performance degradation that continues for a significant period of time, the resulting resistance to fundamental use could be a catalyst for volatility and drive down the cost of the network.”

Breaking the bear flag?

A combination of macroeconomic and network issues risks triggering a bear flag fall by September.

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The decisive SOL close below the flag’s lower trendline means that a further decline in the $21-$23 area is likely, according to the technical chart below.

SOL/USD daily chart with bear flag breakout setting. Source: Trading View

In other words, a price drop of 35-38% from the current price level.

The views and opinions expressed here are solely those of the author and do not necessarily reflect those of Every investment and trading step involves risk, you should do your own research when making a decision.