It's clear that Solana (SOL +0.21%) suffered a truly disastrous year in 2022. Though it's risen slightly since the start of the new year and is now priced at around $13, the cryptocurrency is still down more than 94% from its all-time high of $260 in November 2021.
Against this backdrop, of course, many investors are simply throwing in the towel on Solana, spooked by continued fears of an FTX contagion. However, it could be the case that we are finally seeing -- or have already seen -- a market bottom for the cryptocurrency. With that in mind, here's the ultra-contrarian case for investing in Solana, even at such a low price point.
FTX contagion fears
Admittedly, Solana is particularly susceptible to the risk of FTX contagion, due to its close links with former FTX CEO Sam Bankman-Fried and the hedge fund that he controlled, Alameda Research. But we already knew this back in early November, when the FTX meltdown began. The market had seemingly priced in all the potential bad news scenarios and driven Solana down to a bargain-basement level.
CRYPTO: SOL
Key Data Points
That's why it is particularly perplexing that Solana is once again dropping after it had seemingly stabilized at the $12 to $13 level. The best explanation for the new round of selling is that entities controlled by Bankman-Fried or FTX are now liquidating Solana positions as they prepare for bankruptcy protection. And this round of new selling could spark other large holders to sell. At some point, it could result in a panicked rush to the exits.
Long-term fundamentals
But I think many of these FTX contagion fears remain overblown. It is important to understand that people are not selling Solana because it's a bad business or because it did anything wrong -- they are selling Solana primarily because of its former relationship with FTX.
Image source: Getty Images.
Solana remains a key player in several blockchain sectors, including non-fungible tokens (NFTs), Web3, and gaming. In fact, as crypto research firm Messari recently pointed out, the crypto's growth during the first nine months of 2022 was particularly noteworthy. In the third quarter of 2022, Solana's NFT business grew at a near 20% quarter-over-quarter rate, as measured by daily new NFTs. As a result, Solana is now the No. 2 player in the NFT market, as measured by secondary sales volume.
Even after the FTX meltdown, Solana continued to show growth. For the month of November, for example, Solana NFTs saw a 42% spike in trading volume at a time when other rivals were struggling. Thus, while the overall NFT market has been trending down since May, Solana remains a bright spot.
Solana has made it a special point to reassure its developers in the aftermath of the FTX meltdown, and it has planned a massive worldwide tour for its developer community in 2023. Thus, even if high-profile projects decide to abandon it for other blockchains -- as happened in late December, when two high-profile NFT projects announced plans to leave Solana -- there's plenty of deep bench depth to replace them. The Solana ecosystem is not going away.
Moreover, Solana has a number of high-profile product launches planned for 2023 that could change the narrative for investors. For example, it's still moving ahead with its Solana Mobile strategy, which it will likely integrate with its Solana Pay strategy. Combined, Solana Mobile and Solana Pay could result in a first-of-its kind Web3 payment system enabled with a "crypto phone."
This is not about buying the dip
That being said, this is not about buying the dip. Solana has fallen too far, too fast, for this to be considered a "dip." Deciding to buy it has become much more risky and speculative. If you are buying Solana now, it is because you believe in its long-term prospects and you are willing to wait a considerable amount of time for its price to recover.
Keep in mind that it was trading for close to $37 at the time of the FTX meltdown in November, so it's not making a giant leap of faith to say that Solana could eventually regain that level as soon as the FTX drama plays out. That would represent a nearly 270% return on investment.
While the short-term outlook for Solana is admittedly dicey, I'm long-term bullish on it. There is simply too much long-term value in the crypto to ignore. We don't know when the precise market bottom for it will occur, so I would not advise trying to time the market. Instead, it makes more sense to accumulate Solana on the way down and wait patiently for the sun to come out on it.
