The crypto market is still as volatile as a box full of firecrackers. That’s no secret. Global blockchain ledgers of digital coins and tokens are still new, especially in the investment space.
I am convinced that there is a bright future for serious crypto projects as blockchain technology disrupts banking systems, payment services, insurance, personal records and more. However, even the most resilient crypto names go through intense cycles of boom and bust, fueled by good and bad news.
One of the sharpest crypto dives to date came last November when crypto trading exchange FTX had a financial meltdown and filed for bankruptcy protection. According to CoinMarketCap data, the FTX scandal has reduced the market value of the entire cryptocurrency market by 22% in two short days.
Aside from FTX’s own utility coin, no cryptocurrency has hit this crash harder than Solana (SOL -1.82%). The disgraced crypto exchange had many ties to Solana and held a large number of tokens, prompting traders to rush to the exits. The price of the decentralized finance (DeFi) token fell from $32 to $8.40 during the FTX crisis. It made a comeback in 2023 and has surged to $24.40 this year.
I’m just as bullish on Solana as I was before the FTX crash. However, that’s not exactly a ringing endorsement. Some of my colleagues are more optimistic. Check out Dominic Basulto’s Solanas 2023 preview for a rosier analysis, or read on to see why I want to love Solana but can’t quite call it a buy right now.
What is wrong?
In a perfect world, Solana would be a fantastic alternative to smart contract platforms such as ether (ETH -0.28%) and Cardano. In fact, Solana is a better platform for developing decentralized apps than Ethereum in several ways. It was a power-sipping proof-of-stake system before Ethereum made that leap last September. Even after Ethereum’s “merge”, Solana is still executing smart contracts faster and cheaper.
What’s not to love, right?
Well, you may remember the classic scene from Fried Green Tomatoes at the Whistle Stop Cafe where some teenagers steal a parking spot that Kathy Bates wanted, only to see her red bug get crushed by Kathy’s tank-like car.
“I’m older and have more insurance,” she says flatly, pulling out of the supermarket parking lot.
Being “younger and faster” couldn’t compete with a bigger and stronger structure. The same can often be said about emerging cryptocurrencies. Kathy Bates plays Ethereum’s role in Solana’s growth story.
This project was launched in 2020, five years after the first Ethereum token was mined, and its ecosystem of apps and developers cannot compete with the dominant Ethereum alternative. Additionally, Solana could have designed its smart contracts to be compliant with Ethereum’s ERC-20 standard, making it easier to move projects from one system to another. They didn’t, which seems like a missed opportunity.
The FTX debacle has only made that division broader and clearer. Solana’s developer community and the number of transactions per day have settled down since November, expanding Ethereum’s advantage in real-world utility.
Image source: Getty Images.
Where is Solana today?
That’s the deal. I have always respected Solana’s innovative technology and the challenge it poses to the Ethereums and Cardanos of the crypto world. Solana joined my personal crypto portfolio in the summer of 2021 before the current crypto winter hit. When token prices plummeted in 2022, I planned to move into a larger Solana position at lower prices at dollar cost average, but I never hit that “buy”. button again.
Now, in early 2023, Solana is trading 92% below its all-time highs amid waning developer interest. The cryptocurrency’s close ties to FTX drained confidence and interest from investors and developers alike on November’s reckoning day, and it will take time to build it all back up.
I was expecting that before the FTX crash, Solana would be a solid long-term growth story based on a great technical platform and a vibrant app developer community. Now I see slower growth and more risk in the coming years as the worst case scenario is that the remaining Solana apps pack up and move to a different blockchain ecosystem.
I’m still slightly optimistic, but not impressed enough to buy more tokens. It’s too easy to double down on more obvious options. To invest in the Web3 vision where Solana remains a respectable player, I’d rather save more Speckle tokens instead. Ethereum is looking stronger than ever for wider adoption of DeFi and blockchain-based apps.
Long story short, prior to the FTX crash, Solana was a “buy” with a huge asterisk. That asterisk now points to another footnote, trading high prices and overheated expectations for a dramatic trend reversal. I’m still a moderate Solana bull with too many question marks to inspire another buy today.
Anders Bylund has positions in Cardano, Ethereum, Polkadot and Solana. The Motley Fool has positions in and recommends Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.