In May 2021, the crypto market peaked at $2.5 trillion before falling 50% over the next few months. The market then rallied to a new high of $3 trillion in November 2021, but concerns regarding rampant inflation sparked a sell-off in speculative assets (including cryptocurrencies), and the market was again cut in half by January 2022. And during that time, many popular cryptocurrencies have fallen even further. For instance, Solana (SOL +3.10%) currently trades at nearly 60% below its all-time high.
For better or worse, that type of volatility has become commonplace when dealing with crypto assets. Even so, the market has undeniably created tremendous wealth in a very short period of time. More importantly, every past downturn has ended with the market hitting a new high, meaning every past sell-off has been a buying opportunity.
With that in mind, now looks like a good time to invest in Solana. Here's why.
CRYPTO: SOL
Key Data Points
A faster, cheaper alternative to Ethereum
Solana is a smart contracts platform meant to support scalable, user-friendly applications. Its core innovation is a consensus protocol that blends proof of stake with proof of history, a system in which each transaction is timestamped to create a verifiable order of events, thereby accelerating the confirmation process. To that end, the Solana blockchain can theoretically process 50,000 transactions per second (TPS), and it can achieve finality in just 13 seconds (i.e. the time taken to irreversibly incorporate transactions into the blockchain). Better yet, the average transaction currently costs a fraction of a cent. By comparison, Ethereum handles about 14 TPS, requires up to 6 minutes to reach finality, and currently sports an average transaction fee of nearly $14.
In short, Solana is a faster, cheaper alternative to Ethereum, and that value proposition has piqued the interest of many developers. The blockchain features more than 1,500 projects, ranging from NFT marketplaces and video games to social media apps and decentralized finance (DeFi) services. Solana actually ranks as the fifth-most-popular DeFi ecosystem in the blockchain industry, with $7.22 billion invested on the platform. And the developer team recently introduced Solana Pay, a product that could further disrupt the finance industry.
Image source: Getty Images.
Solana Pay could be a big deal
Solana Pay allows consumers to pay merchants directly using stablecoins, a type of cryptocurrency pegged to the price of fiat currency. In other words, stablecoins are subject to the same volatility as other crypto assets, which has made them quite popular with DeFi investors. In fact, there are more than $4 billion worth of USD Coin -- a stablecoin pegged to the U.S. dollar -- in circulation on Solana right now.
Moreover, because Solana Pay transactions are powered by the Solana blockchain -- not banks, fintechs, or credit card networks -- they are settled immediately and cost a fraction of a cent. Those savings could have a big impact on a merchant's bottom line. For instance, PayPal charges 3.49% per online transaction plus a fixed fee, meaning a merchant might earn $96 on a $100 sale. But with Solana Pay, that merchant would see more than $99.
Of course, there is a very long road between now and mainstream adoption. But in the month since Solana Pay went live, more than 600 merchants have engaged with the platform. Better yet, with iOS app mtnPay.so, merchants can actually integrate Solana Pay with Block's (the company formerly known as Square) point-of-sale software. That catalyst could help the product catch fire in the coming months and years.
How big could Solana be?
The bull case for Solana is straightforward. It's a fast and therefore scalable decentralized platform on which developers can build all manner of software and services. Products like Solana Pay could have a profoundly disruptive impact on the current financial system. More broadly, as Solana's ecosystem of software and services sees greater adoption from consumers and investors, demand for the SOL coin should rise, which should make it more valuable over time.
How valuable? No one knows the future. But Solana currently has a market cap of $35.8 billion. If it were to surpass Ethereum -- which currently has a market cap of $403 billion -- investors would see 10x returns. Of course, Solana could eventually be much bigger than that. It all depends on the level of adoption the blockchain manages to achieve. But given the potential upside, I think it's worth buying this beaten-down cryptocurrency.
