After starting the year strong, Solana (SOL -4.08%) is cooling off, as are many other cryptos. In January, the cryptocurrency was up more than 134% at one point and looked unstoppable. But it's been a different story in February, with it down nearly 20% from its peak in January.
The good news is that this 20% downturn qualifies as a "dip" and a potential buying opportunity. Solana still has long-term catalysts in place that could help power it to higher gains later this year.
Solana fundamentals
The fundamentals still look good at Solana. After the spectacular collapse of FTX (FTT) in November, investors were understandably concerned whether the crypto could ever recover. Not only was the price of Solana tanking, but it also looked like developers, non-fungible token (NFT) creators, and users might decide to abandon the Solana blockchain out of an abundance of caution.
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But that doesn't appear to be the case. When crypto research firm Messari released the latest Solana numbers for 4Q 2022, many of the key indicators of long-term health -- such as the number of transactions processed by the blockchain -- were actually improving. While there was a definite pullback in some areas of Solana's performance, such as the number of NFTs being minted on the blockchain, Solana was actually holding up well vis-a-vis its peers.
New growth initiatives
Then, at the end of January, the founders of the Solana blockchain posted an in-depth and very optimistic update on some areas of growth that investors can expect to see in the future. The update was particularly noteworthy because it laid out Solana's future ambitions in areas ranging from gaming to decentralized finance (DeFi). And it suggested that Solana was on the cusp of tying together several different strategies -- such as Solana Mobile and Solana Pay -- into one overarching strategy based on decentralization.
The Solana Mobile strategy is particularly noteworthy because it marks Solana's foray into physical hardware supported by its blockchain. Analysts are now expecting the crypto to roll out its Saga "crypto phone" sometime in Q1 2023. If you live in one of the two cities with a Solana retail store (New York City and Miami), it will soon be possible to see real tangible proof of Solana's future blockchain vision and hold it in the palm of your hand.
Solana even has a new app store for the Saga phone. As a result, it will be much easier to download decentralized applications specifically tailored for the Solana blockchain. People are already used to downloading apps to their phones, so Solana will not need to change user behaviors here. Admittedly, pre-orders for the Saga phone have been lower than anticipated, but that can be attributed to the continuing effects of the FTX contagion.
What is fair value for Solana?
It's nearly impossible to talk about the long-term future direction of Solana without taking into account the rollercoaster ride the crypto has been on recently. Before the collapse of FTX and the spread of the FTX contagion, the crypto was trading at more than $36. Then came an epic collapse that saw it dip below the $10 mark.
Thus, even though Solana has nearly doubled in price from year-end lows, there's still plenty of room left to rise. If you buy into the notion that Solana is on the path to recovery, then the fair value for the crypto should be close to $36, the same level that Solana was trading at before the FTX meltdown occurred.
But that price doesn't even start to take into account all of the new growth initiatives at Solana right now. While it will take time for investors to see any immediate payback from long-term strategies like Solana Mobile and Solana Pay, we're starting to see the emergence of a much more vibrant Solana ecosystem. At one time, the crypto's only core strengths appeared to be in NFTs and blockchain gaming. Now, however, it appears to be making a credible foray into areas such as DeFi, as well.
For that reason, I'm long-term bullish on Solana. There are going to be plenty of ups and downs in its price over the next 12 months, so it's important to focus on the crypto's long-term vision and what the team is trying to accomplish.
We're now seeing encouraging signs that everything that made investors love Solana back in 2021 -- such as its incredible speed and transaction-processing ability -- are now being leveraged with real-world uses and real-world products. The current dip could be a great opportunity to pick it up at a lower price.
