Even with recent sell-offs, Solana (SOL 0.94%) stands as one of the cryptocurrency market's most explosively successful coins and projects. Despite trading down roughly 85% from its lifetime high, the network's token price has surged more than 4,100% since its launch in March 2020. For investors wondering what comes next, read on for bull and bear cases on Solana presented by two Motley Fool contributors.
Bull case: Solana is the key blockchain for crypto's future
Taylor Carmichael: I'm very bullish on Solana. Unlike Bitcoin (BTC 0.93%) and Ethereum (ETH 1.95%), Solana's blockchain is lightning fast. Its blockchain network can process 65,000 transactions per second, according to Anatoly Yakovenko, the co-founder and CEO of Solana coin. That's 10,000 times faster than Bitcoin and 4,000 times quicker than Ethereum.
This network speed is critical for scalability. Take a look at the "gas fees" that users pay for transactions on the Ethereum network. The price spiked over $450 earlier this year. Even $23 is ridiculously high, given that a transaction on Solana's network costs far less than a penny. A transaction on Solana's network runs about $0.00025.
Ethereum Average Gas Price data by YCharts.
It's entirely possible -- likely, I would say -- that credit card companies like Visa (V +0.29%) and Mastercard (MA +0.68%) will one day be disrupted by crypto payment networks that are far cheaper. This year Solana released Solana Pay, a new payments protocol that bypasses the credit card networks entirely. Instead of waiting days to get paid, the merchant gets paid in seconds. Instead of paying a dollar or two to credit card companies, the merchant is charged a fraction of a penny.
Perhaps even more exciting than Solana Pay is the launch of Solana Mobile Stack, an open-source software platform that will make accessing the blockchain easier for consumers. Next year Solana is introducing its own phone, the Saga. It will come pre-loaded with Solana Pay and will work as a crypto wallet, allowing users to seamlessly move and store cryptocurrencies and non-fungible tokens (NFT).
Last year Solana coin had a huge spike in valuation, reaching $260. Now, with the rest of the crypto universe, there's been a dramatic price drop, and that same coin trades hands for $40. Nonetheless, even after the dramatic fall, Solana owners have dramatically outperformed the stock market over the last two years.
Solana Price data by YCharts.
Crypto has had major crashes before, and the stronger coins have recovered. Solana has an impressive blockchain, and because of its speed and functionality, it has a legitimate chance of being the most important blockchain over the next decade. That's why I own this coin, and I'm still adding to my position.
Bear case: SOL is cheaper, but big risks remain
Keith Noonan: Solana's transaction capabilities, speed, and low fees are attractive characteristics and could help the network continue to gain ground. However, while Solana can be used for launching and scaling decentralized applications (dApps), the network itself isn't decentralized, and there are plenty of factors that could send the price of SOL lower.
The broader cryptocurrency market has also shown itself to be majorly impacted by macroeconomic trends. While cryptocurrencies have often been championed as protection against economic volatility, tracking the crypto market's performance in relation to recent headwinds, including inflation and rising interest rates, should make it clear that the space is not at all immune to macroeconomic pressures.
CRYPTO: SOL
Key Data Points
It's also worth noting that many of the most popular decentralized applications revolve around trading, storing, or creating cryptocurrencies, and this further exposes Solana's token to volatility in line with the crypto market at large. Popular applications such as minting, storing, and trading marketplaces for non-fungible tokens (NFTs) also create downside risk for the SOL token. In addition to the SOL token being at risk from overall pricing turbulence in the cryptocurrency market, the fundamental valuation case for the token may also be damaged if crypto and NFT prices decline or projects in these categories fail.
At a little more than two years old, Solana is also still a young project, and it's too early to determine if it will be able to build a lasting moat in the space. In addition to current layer-1 leader Ethereum and existing competitors such as Avalanche, new rivals may emerge that dampen growth opportunities for the network and its token. SOL could very well bounce back from current pricing levels and go on to reach new heights, but there's still a lot that could go wrong here.
Should you buy Solana?
Solana's cryptocurrency continues to look like a high-risk investment, but it could have explosive upside. If you think that its underlying blockchain network will continue to gain traction for dApps and see big promise in the crypto space over the long term, recent volatility has created an opportunity to buy the SOL token at a huge discount compared to the pricing high it hit late last year. However, if you're not willing to embrace high levels of risk and volatility, the cryptocurrency may not be a good fit for your portfolio.
