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Is Solana Still a Buy After Jumping 11,000%?

By Adria Cimino – Jan 12, 2022 at 6:00AM

Key Points

  • Solana has wowed users with its transaction speed and low costs.
  • Projects on the blockchain are multiplying -- and now total more than 5,100.
  • Solana has become a big player in the world of NFTs.

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Solana is laying the groundwork for more growth.

Last year was a major one for cryptocurrency. The world's biggest player, Bitcoin, surged past $60,000. The cryptocurrency market as a whole reached a value of $3 trillion. And young cryptocurrency players climbed the market value ladder as they gained investors and users. A good example of this is Solana (SOL -1.22%). This cryptocurrency soared more than 11,000% last year. And it is now the world's sixth-biggest cryptocurrency by market value.

Now, with thousands of cryptocurrencies out there, though, it's reasonable to ask whether such big gainers will continue to climb -- or if the crowded market will weigh on their ability to stand out. Here, let's take a look at Solana and see whether this 2021 winner still is a buy.

A woman stands in front of a financial information panel outside in a city and looks at something on her phone.

Image source: Getty Images.

The secret to Solana's success

First, you might wonder how Solana even managed to garner so much attention. Solana is both a cryptocurrency -- with the token Sol -- and a blockchain network. Many rivals also offer this combination of a blockchain and a token. But the secret to Solana's success so far has to do with its speed and low transaction fees.

For transactions to take place on the network, they must be validated. And Solana's method of proof of history helps speed things up. It marks blocks of data with a timestamp, so they immediately move forward in the validation process.

So, Solana can process as many as 50,000 transactions per second. And transaction costs total a fraction of a cent. By comparison, bigger rival Ethereum processes about 30 transactions per second. Ethereum transaction fees vary widely. But in recent months they climbed as high as $62.

As a result, developers are flocking to Solana to build projects -- and users are flocking to Solana's decentralized applications (dApps). In December, Solana gave an update on its progress last year. In January of last year, Solana hosted about 70 projects. By December, that number reached more than 5,100. Total transactions on the platform rose from 10 billion in January to more than 45 billion by the end of the year. And total value locked, or the total amount of assets staked to gain passive income, has increased from $100 million to $11.4 billion.

NFT leadership

Solana also is making its mark in the world of non-fungible tokens (NFTs). These are certificates of ownership of online assets or collections such as art. It's now the third-biggest blockchain by all-time sales volume, according to CryptoSlam.

All of this growth is laying the groundwork for more growth this year and beyond. That's because it shows the real-world utility of Solana -- and the fact that developers and users are opting for this platform in great numbers. From a math perspective Solana also has room to grow. Right now, 311 million coins are in circulation. If Solana doubled from today's level, its market value would total about $83 billion. That would make it the world's third-biggest cryptocurrency.

Of course, there are no guarantees Solana will double. But it is possible considering coin supply and growth so far. And even if it doesn't double, it's very possible Solana still could increase this year. And that means Solana still is a buy -- even after its spectacular gain.

Adria Cimino owns Ethereum. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

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