What happened

It's been another week of high volatility for the broader cryptocurrency market. After intense sell-offs driven by concerns related to regulatory threats and the emergence of the coronavirus omicron variant, many leading cryptocurrencies have posted strong gains over the last seven days of trading. 

The tokens of Ethereum (CRYPTO:ETH), Cardano (CRYPTO:ADA), and Solana (CRYPTO:SOL) are up roughly 6.5, 3.5%, and 12.6%, respectively, over the past week as of 2:30 p.m. ET today. Resurgent bullish momentum in the crypto space after its recent volatility appears to be the biggest catalyst behind each token's gains in the past seven days, but there are also some coin-specific factors that are likely influencing the increases. 

Person holding tablet with coins and rising graph on it.

Image source: Getty Images.

So what

Ethereum, Solana, and Cardano's respective tokens each differ from some other major cryptocurrencies in the sense that they're tied to application-building networks, as opposed to just functioning as currencies. It's possible that this may give them a superior fundamental valuation case compared with tokens like Bitcoin, Dogecoin, and Shiba Inu. Investors have been keeping a particularly close eye on how application-backed cryptocurrencies are performing relative to Bitcoin, and some are betting that a major shift could be in the works. 

With a current market capitalization of roughly $516 billion, Ethereum's ether token ranks as the second-largest cryptocurrency by market cap. For comparison, Bitcoin has a market cap of roughly $1.04 trillion. With application-based cryptocurrencies gaining favor among investors and Ethereum set to roll out a variety of network updates next year, excitement is building around the possibility that ether could surpass Bitcoin and become the world's largest cryptocurrency. 

The Ethereum 2.0 updates are set to be rolled out next year and should help make its blockchain network faster and more efficient. It's too early to say what exactly this will mean for the valuation of the ether token, but some investors are expecting that the Ethereum network's superior functionality compared with Bitcoin will allow it to become the new crypto market leader. 

After some steep sell-offs, investors are also warming back up to Cardano's ADA token. The cryptocurrency posted big losses amid sell-offs related to concerns about the omicron variant and news that eToro would be limiting trading of the token for U.S.-based account holders, but investors appear to have now digested those risk factors.

Solana's recent gains have been even more explosive. Grayscale Investments debuted its Grayscale Solana Trust on Nov. 30, generating an uptick in bullish momentum for the token and paving the way for a potentially significant influx of institutional investment. The SOL token also gained ground after it was announced that a group of venture capital firms had set aside a $4.3 million investment to build a Solana-based metaverse project. 

Now what

Ethereum, Cardano, and Solana have each managed to post incredible valuation gains across 2021's trading. 

Ethereum Price Chart

Ethereum Price data by YCharts

Solana's token has been the biggest winner across the stretch, by far, but each token has benefited from the market's appetite for application-backed digital currencies. While the blockchain-based application network space may prove big enough to support multiple winners, Cardano and Solana are both positioned as potential competitors to Ethereum, and investors should keep in mind the risks that competitive threats pose to each respective token. 

This year's surge in cryptocurrency valuations has largely been driven by speculation -- even as long-term use cases and adoption outlooks have become more promising for some application-focused blockchain networks. It's possible that Ethereum, Cardano, and Solana will continue to post more impressive gains in conjunction with the evolution of their networks and surging interest in the broader crypto space, but investors should also keep in mind that cryptocurrency valuations will likely continue to see volatile swings in the near term. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.