One of the best-performing cryptocurrencies this year, Solana (SOL +2.42%) has unsurprisingly become a hot topic among crypto enthusiasts. The asset has appreciated more than 15,000% on a year-to-date basis.
There are many reasons for Solana's intrigue among investors. However, the cryptocurrency's performance this year is of utmost interest to investors right now. This newly minted "top 10" cryptocurrency by market cap has absolutely skyrocketed in recent months. Indeed, any asset that grows from less than $1 billion in market capitalization to more than $70 billion in a few months is one investors are going to keep an eye on.
There are many reasons investors may want to consider Solana right now. That said, these three reasons stand out as crucial to understanding the story behind Solana.
Let's dive in.
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1. Solana's mining model is attractive for a number of reasons
A lot of recent discussion around the energy usage tied to proof-of-work mining models for cryptocurrencies such as Bitcoin has driven some investors to seek out more environmentally friendly cryptocurrencies. Those operating with proof-of-stake models, such as Solana, have been outperforming. I think this is certainly no coincidence.
However, Solana's blockchain technology is really unique. This network combines a proof-of-stake consensus algorithm with the cryptocurrency's own proof-of-history system. What this means is that transactions are processed in order, operating as a first-in, first-out system. This speeds up transaction times for the entire network, while also keeping fees very low (reportedly less than $0.01 per transaction).
In a traditional proof-of-work model, miners tend to process higher-value transactions first. However, with this sort of model, transactions are processed in order. This has led users on the network to see quicker transaction speeds regardless of size or relative value. This has also allowed Solana to process as many as 50,000 transactions per second. That's lightning fast.
2. Solana is a great way to play the surge in NFT interest
As one of the potential "Ethereum killer" altcoins investors are looking to, Solana's high-powered platform has shown the impressive ability to drive innovation in a number of ways. One such focal point for investors is the ease at which consumers can make online purchases using Solana. Indeed, this is a cryptocurrency with some intriguing real-world use cases, unlike other large-cap crypto tokens.
However, one of the most-discussed use cases Solana has been driving of late is the non-fungible token (NFT) marketplace. Via Solonart, an NFT marketplace on the Solana network, NFT investors have the ability to buy and sell popular NFTs.
Reports have indicated Solana is gaining market share fast in the NFT world. One of the drivers of interest in Solana and Solanart of late has been a recent offering of a collection of 10,000 "smoothest brained" ape images. This NFT collection sold within eight minutes of launch and was carried out with little in the way of disruption for NFT investors.
Those buying NFTs on other blockchains such as Ethereum have noted congestion issues as well as much higher transaction fees. As we just pointed out, Solana's low-fee, high-speed network has proven to be beneficial for NFT investors looking to nab a popular piece of digital artwork.
Those bullish on the growth of the NFT space certainly have reason to consider Solana in this context.
3. Broader market acceptance a big driver for Solana
As we've seen with other cryptocurrencies, the broad acceptance of a given cryptocurrency by various exchanges or crypto funds has driven retail investor interest in said cryptocurrency token. For Solana, this certainly appears to be the case.
Earlier in June, it was announced that Solana would be listed on Coinbase (COIN +4.30%) Pro. Being listed on a major cryptocurrency exchange like Coinbase is a big deal. These exchanges provide for a broader and more diverse investor base. Accordingly, the added liquidity for a specific cryptocurrency like Solana has led to a "Coinbase effect" for newly listed tokens. According to crypto researcher Messari, cryptocurrency tokens that list on Coinbase see an average gain of 91% in the five days following said listing.
Since then, Osprey Funds announced it was working on launching a Solana Fund. This move followed an earlier announcement from Grayscale that the crypto fund manager was exploring adding a Solana trust in short order.
Indeed, wider acceptance of any cryptocurrency has proven to be a key catalyst for outperformance in the near term. These recent deals signify Solana is here to stay as a mega-cap cryptocurrency. At least Solana bulls hope so.
The bottom line
Like any cryptocurrency, Solana is certainly not without risk. Indeed, any asset that appreciates in value as quickly as Solana also carries a heightened level of risk. Momentum works in both directions, meaning should the winds change, Solana's potential correction could be more abrupt than its peers, considering how far this cryptocurrency has run.
That said, there are plenty of valid reasons underpinning Solana's recent rise. Accordingly, investors looking to take the plunge into a cryptocurrency with tremendous momentum and a potentially longer runway for growth may certainly want to consider Solana right now.
