By nearly any metric, Solana (SOL -4.35%) has been one of the worst performers in the crypto market this year. Solana is down 57% over the past 30 days and 92% for the year. That makes Solana the worst-performing top 100 crypto over the past month, and the 97th worst-performing crypto year-to-date. In short, this is rock bottom for Solana.
But there is an ultra-contrarian case for investing in Solana right now. Fears of FTX (FTT) contagion may be wildly overblown, and the fundamentals of Solana blockchain activity continue to show signs of improvement. Here's a closer look at why it might make sense to invest in Solana right now.
FTX contagion
It's impossible to talk about Solana these days without also talking about the failed crypto exchange FTX and its affiliated hedge fund, Alameda Research. Sam Bankman-Fried, the former chief executive officer of FTX, was an early investor in Solana; in addition, Alameda continues to be one of the largest holders of Solana. By some estimates, Alameda now holds 8.75% of the total circulating supply of Solana. The fear is that bankruptcy proceedings at FTX will trigger a rapid liquidation of this Alameda stake, placing huge downward pressure on the price of Solana.
This is an important point to keep in mind, but much of the FTX contagion narrative seems to be overblown. Any crypto with ties to Sam Bankman-Fried has been tarred and feathered as a "Sam coin" and been punished mercilessly by the market. Investors are not really sure how the unfolding FTX-Alameda saga is going to play out, so it's better to be safe than sorry. Better to sell Solana now, rather than wait for a mass liquidation event later. That said, Solana co-founder, Anatoly Yakovenko, has said that Solana still has 30 months of runway left due to all the VC funding it raised in the past. He also confirmed that Solana had no assets on FTX, and hence no direct exposure.
Underlying blockchain fundamentals
Moreover, Solana continues to show signs of improvement in its underlying blockchain fundamentals, as measured by user growth, network stability, and transaction activity. Crypto research firm Messari recently released its "State of Solana" report for Q3 2022, and the numbers look better than one might have expected. Although this report does not take into account recent events at FTX, it does show the overall trend at Solana. For example, average daily transaction volume has seen a 30% bump on a quarter-over-quarter basis.
Image source: Getty Images.
And, as Messari highlights, Solana is continuing to make inroads in non-fungible tokens (NFT). Solana is now the No. 2 player in the NFT market, trailing only Ethereum (ETH -1.56%). Solana has seen rapid growth in the number of new NFTs available for sale, and has been taking steps to lure NFT creators over to the Solana platform. For example, the top Solana NFT marketplace, Magic Eden, has been taking a very aggressive approach to protect creator royalties and show creators that they are needed and wanted on the Solana platform. In November, Solana saw a 42% spike in NFT trading activity.
New future initiatives
The really exciting story for Solana, though, involves future strategic initiatives. Solana, for example, is going to launch a new mobile crypto strategy in early 2023 that will see the introduction of Saga, the first-ever crypto phone. Solana is also taking further steps to develop unique forms of blockchain gaming on its platform. One example that saw a huge spike in popularity in 2022 was STEPN (GMT -7.95%), which enables users to earn crypto by buying NFT sneakers and then going on daily walks or runs.
Should I buy Solana?
Obviously, investing in Solana right now is going to require a tremendous amount of courage. But on the other hand, Solana may have nowhere to go but up. It is down 92% this year and 95% from an all-time-high of $260. At one time, Solana was an "Ethereum-killer" and one of the hottest cryptos in the market. Now it's literally one of the worst cryptos you can buy, as measured by recent performance.
But I think investors are losing focus on the underlying fundamentals at Solana and the growth potential of new initiatives already underway. Solana is diversifying away from NFTs (arguably one of the worst market segments in crypto right now) and into areas like mobile and gaming. I'm bullish on Solana as a long-term investment, and I think the recent FTX scandal might even end up being a net positive for Solana: It will force Solana to build even smarter without the easy VC money it had access to in the past.
