The crypto market is still as volatile as a box of firecrackers. That’s no secret. Global blockchain ledgers of digital coins and tokens are still new, especially in the investing arena.
I’m convinced that serious crypto projects have a bright future ahead as blockchain technology disrupts banking systems, payment services, insurance, personal records, and more. However, even the most robust crypto names are going through intense cycles of boom and bust, driven by good and bad news.
One of the sharpest crypto dives so far came last November when the FTX crypto-trading exchange had a financial meltdown and filed for bankruptcy protection. The FTX scandal slashed 22% off the total cryptocurrency-market’s market value in two short days, according to CoinMarketCap data.
Apart from FTX’s own utility coin, no cryptocurrency took that crash harder than Solana (SOL -3.15%). The disgraced crypto exchange had many ties to Solana and owned a large number of tokens, so traders ran for the exits. The decentralized-finance (DeFi) token’s price fell from $32 to $8.40 as the FTX crisis progressed. It has mounted a comeback in 2023, rising as high as $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 preview of Solana’s 2023 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.
In a perfect world, Solana would be a fantastic alternative to smart-contracts platforms like Ethereum (ETH -0.50%) and Cardano. In fact, Solana is a better platform for decentralized-app development 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 still executes smart contracts faster and cheaper.
What’s not to love, right?
Well, you might recall that classic scene from Fried Green Tomatoes at Whistle Stop Cafe, where some teens steal a parking spot Kathy Bates wanted, only to see their red Beetle crushed by Kathy’s tank-like car.
“I’m older and I have more insurance,” she deadpans, pulling out of the supermarket parking lot.
Being “younger and faster” couldn’t compete with a bigger and stronger structure. You can often say the same about up-and-coming cryptocurrencies. Kathy Bates plays the part of Ethereum in Solana’s growth story.
This project was started in 2020, five years after the first Ethereum token was mined, and its ecosystem of apps and developers can’t compete with Ethereum’s dominant alternative. Furthermore, Solana could have designed its smart contracts to be compatible with Ethereum’s ERC-20 standard, making it easier to move projects from one system to the other. They didn’t, which looks like a missed opportunity.
The FTX debacle only made this separation wider and clearer. Solana’s developer community and number of transactions per day have quieted down since November, extending Ethereum’s advantage in real-world utility.
Where does that leave Solana today?
Here’s the deal. I always respected Solana’s innovative technology and the challenge it presents 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 set in. As token prices plunged in 2022, I planned to dollar cost average my way into a larger Solana position at lower prices but never slapped that “buy” button again.
Now, in early 2023, Solana trades 92% below its all-time highs amid waning developer interest. The cryptocurrency’s tight connections to FTX sapped trust and interest from investors and developers alike on November’s day of reckoning, and it will take time to rebuild it all.
I was expecting Solana to be a solid long-term growth story before the FTX crash, based on a great technical platform and vibrant app-developer community. Now I see slower growth and more risk in the years ahead, since the worst-case scenario involves the remaining Solana apps packing up and moving to another blockchain ecosystem.
I’m still mildly bullish but not quite 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 pick up more Polkadot tokens instead. For a broader play on DeFi and blockchain-based apps, Ethereum looks stronger than ever.
Long story short, Solana was a “buy” with a huge asterisk before the FTX crash. That asterisk points to a different footnote now, switching high prices and overheated expectations out for a dramatic turnaround story. 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.