After a Magnificent Rally in 2023, Is Solana Still a Buy?

In 2023, Solana (SOL -4.44%) soared in value by more than 900%, making it one of the top-performing major cryptocurrencies. But it’s been an entirely different story in 2024. Solana is up a meager 2% for the year, and seems to have stalled out around the $100 price level.

This could simply be a case of Solana overheating, and investors needing time to pause and regroup after a scorching rally last year. Or it could be an early warning signal of deeper problems at Solana. Let’s take a closer look.

Factors holding Solana back

Three major factors appear to be weighing on Solana right now. One is related to the recent launch of the spot Bitcoin (CRYPTO: BTC) ETFs. Given all the buzz and hype surrounding this launch, investors were focused almost entirely on Bitcoin in January. Any investment dollars that once might have flowed to Solana were now going almost entirely to Bitcoin. At one point in mid-January, 98% of all institutional money was going to Bitcoin.

Perhaps of more concern are the questions that continue to swirl around the security and resilience of Solana’s blockchain. In early February, Solana suffered a major five-hour outage, bringing its blockchain to a screeching halt. That might not sound like a big deal, but Solana has had a pattern of these network outages for more than two years. Solana set a record for network uptime last year, but investors now have a right to question whether its downtime problems are really behind it.

Finally, investors may be increasingly circumspect about the wave of meme coin mania that engulfed the Solana blockchain at the end of 2023. The meme coin that set this off was Bonk (CRYPTO: BONK), which surged in value by 1,000% at one point last year. There has also been a steady supply of new meme coins and speculative new blockchain projects in 2024. As a result, many of the metrics typically used to track Solana are now being artificially inflated by all this new trading in meme coins.

The big picture: Solana vs. Ethereum

While all these factors are, to a degree, a point of concern, they should not distract from the big picture view. Solana is uniquely positioned to challenge Ethereum (CRYPTO: ETH) as the preeminent Layer 1 blockchain network, and this should be the focus of any investment thesis for Solana backers.

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In 2023, Solana steadily chipped away at Ethereum’s dominance in many key blockchain niches, especially decentralized finance (DeFi). By the end of the year, overall trading volume on Solana’s decentralized exchanges was higher than overall trading volume on Ethereum’s decentralized exchanges.

Moreover, institutional investors appear to be increasingly buying into the idea of Solana being a credible “Ethereum killer.” The best evidence comes from Cathie Wood of Ark Invest, who appeared on CNBC at year-end to make the case for Solana as a faster, more cost-efficient version of Ethereum. While Ethereum may have the first-mover advantage, Solana appears to be gaining ground. Over the long haul, the thinking goes, Solana may eventually flip Ethereum in market cap.

Even better, Solana appears to be innovating at a much faster pace than Ethereum right now. While Ethereum continues to roll out incremental improvements to its blockchain, Solana is pushing ahead with a disruptive new mobile crypto strategy that includes both a hardware component (the Sage crypto phone) and a software component (the Solana Mobile Stack). This is something that Ethereum is not even close to offering. As a result, I’m expecting Solana to grow much more rapidly than Ethereum going forward.

What’s next for Solana?

Keep your eye on the relative market performance of Solana versus Ethereum. This will give you the best indicator of where Solana is headed next. In 2024, Solana is up 2%, while Ethereum is up 6%, so they are essentially running neck-and-neck right now. The slight edge for Ethereum can be attributed to all the buzz surrounding a potential spot Ethereum ETF coming in May.

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So, for now, I’m confident that the overall investment thesis for Solana remains in place. Over the long haul, Solana is uniquely positioned to challenge Ethereum for market dominance. Yes, there will be momentary pullbacks and retrenchments along the way. But Solana is building real, lasting value. So I’m not worried about Solana temporarily stalling out at the $100 price level. I remain long-term bullish on Solana.