Smart-contracts platform Solana (SOL-USD) is down over 45% since the start January. Yet, the slide in price began after SOL-USD hit an all-time high (ATH) of $ 260 in early November 2020.
At the end of 2020, Solana was around $ 1.51. Now, the altcoin is changing hands around $ 90. Thus, the run-up in SOL-USD price in a little over a year means a return of 5,900%. Put another way, despite the decline in the past three months, the proverbial $ 1,000 invested in SOL-USD in January 2021 would now be worth around $ 60,000.
2022 has so far meant a bear market in the crypto space. Year-to-date (YTD), we have also seen Bitcoin (BTC-USD), Ethereum (ETH-USD)and Cardano (ADA-USD) decline by 20%, 29%, and 32%, respectively. Investors now wonder if Solana can reach $ 200 again any time soon.
Given the volatility in broader markets as well as digital currencies, it is not easy to make short-term price projections. However, investors with a two- to three-year horizon could consider a small SOL-USD allocation in their portfolios.
Smart-Contract Projects Moving to Solana
With a market capitalization (cap) of $ 28.9 billion, Solana is among the top 10 cryptos. Therefore, it gets significant investor attention. But more importantly, it has become an important competitor to Ethereum, the largest smart-contract crypto.
International Business Machines (NYSE:IBM) highlights that smart contracts “are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss.” Among the benefits of smart contracts are: “Speed, efficiency and accuracy… Trust and transparency… Security… Savings…”
Therefore, platforms such as Ethereum and Solana have been attracting decentralized finance (DeFi) projects. Recent academic research points out, “In functionality, Solana resembles Ethereum, and most of the applications working on Ethereum can be easily migrated to Solana.” In fact, many are calling SOL-USD the “Ethereum Killer.”
Ethereum comes with high fees and heavy network congestion. Therefore, developers and investors have been looking for alternative smart contract platforms and respective coins. As the growth in the past year shows, Solana has been one of the primary beneficiaries of this shift. Its low transaction fees and fast transaction speeds have made it a promising alternative to Ethereum.
Launched in April 2020, Solana is the proof that performance matters, especially with regard to speed and scalability. The platform can process as many as 50,000 transactions per second, compared to Ethereum’s 15. Transactions on average cost less than a cent.
The Solana network boasts a unique blockchain technology called proof-of-history. This protocol marks each data block with a time tamp to accelerate the validation process. Proof-of-stake technology, used in combination with proof-of-history, allows the platform to handle transactions at lightning-quick speed.
Long-Term Tailwinds for SOL-USD
Solana has also made significant progress in the non-fungible tokens (NFTs) space. The platform has been used to mint more than 5.7 million NFTs. Solana‘s NFT marketplace Magic Eden has 58,400 weekly active addresses. Therefore, users of OpenSea, the leading NFT marketplace, are also looking at Magic Eden closely.
Meanwhile, On Feb. 1, the network announced its Solana Pay platformwhich aims to become a leader in crypto payments among merchants. The protocol allows consumers to send stablecoins like USD Coin (USDC-USD) directly to merchant accounts. Funds are transferred instantly from a consumer wallet to a business account with no intermediary. Merchants no longer need to wait days for deposits or pay high fees to credit card merchants.
The network’s high throughput speed and low transaction costs are expected to be key drivers for the new payments platform. The disruption in this technology could exert considerable pressure on payments infrastructure companies like Visa (NYSE:V), Mastercard (NYSE:MA), and American Express (NYSE:AXP).
Alkesh Shah, an analyst from Bank of America (NYSE:BAC), recently remarked that Solana could become the “Visa of the digital asset ecosystem.” He highlighted that the altcoin is particularly optimized for micropayments and gaming. As a result, long-term Solana bulls are hopeful that SOL-USD can reach new highs in the months ahead.
The Bottom Line on Solana
Solana has a strong investment case. As decentralized applications (dApps) and DeFi products on the network continue to gain popularity, the demand for SOL-USD should also increase, driving its price higher.
Its NFT marketplace and Solana Pay are other reasons to be bullish on Solana. If the platform can continue on its growth path, SOL-USD has a great chance to reach new highs in the coming years.
Meanwhile, there are other smart contract blockchains like Avalanche (AVAX-USD), Cardano, and Polygon (MATIC-USD) that have also delivered significant growth in the past year. They need to be on your watchlist as well.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the US and UK In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.