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Why Solana Is Poised to Rally

By Joe Tenebruso – Jan 13, 2022 at 2:35PM

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The smart-contract platform has a powerful advantage over its rivals.

Solana (SOL 2.32%) was one of the best-performing cryptoassets in 2021, with gains of more than 11,000%, according to data from YCharts. The smart-contract platform gained the attention of investors thanks in part to its blazing fast transaction speeds and rapidly expanding developer community. 

Yet after soaring above $260 in early November 2021, Solana went on to shed half its value by Jan. 10, 2022. Like other blockchain projects, Solana has been negatively impacted by an industrywide swoon that has driven the prices of many cryptocurrencies sharply lower in recent months.

However, Solana's token price has recovered some of its losses and climbed back above $150 this week. Following bullish analyst commentary, the cryptocurrency appears set for a rebound.

A person is pointing to a price chart that rises, then falls, then rises again.

Image source: Getty Images.

On Tuesday, Bank of America analyst Alkesh Shah praised Solana's impressive ability to scale its network, which has long been a major challenge for other blockchain networks like Ethereum.

"Ethereum prioritizes decentralization and security, but at the expense of scalability, which has led to periods of network congestion and transaction fees that are occasionally larger than the value of the transaction being sent," Shah said. In contrast, Solana's average cost per transaction is currently only $0.00025. 

Solana's steep cost advantage will allow it to wrestle away market share from Ethereum in areas such as micropayments and gaming, according to Shah. Moreover, Solana's advantages in blockchain-based payments are so formidable that Shah believes it could become the "Visa of the digital asset ecosystem." 

Developers clearly appreciate Solana's speed and low-cost transactions. More than 400 projects, in areas like decentralized finance and non-fungible tokens, are being built upon Solana's network, and that figure is likely to rise further in the coming years. A thriving developer community is often a powerful catalyst for token price appreciation, and it could help to fuel sharp gains for Solana's investors.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Joe Tenebruso has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool owns and recommends Ethereum and Visa. The Motley Fool has a disclosure policy.

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