The recent slowdown in the crypto market is forcing investors to take a closer look at the underlying fundamentals of the top cryptocurrencies. Two that particularly stand out are Ethereum (CRYPTO: ETH) and Solana (CRYPTO: SOL).
Both of these cryptos recently reached important price milestones and are now looking for the next big catalyst to send them higher. Here's a closer look at both, with an emphasis on key catalysts to watch.
1. Ethereum
In 2022, the big investment thesis for Ethereum was The Merge. This event was a breakthrough technological upgrade that completely transformed Ethereum from a proof-of-work blockchain that required solving math puzzles to validate transactions into a proof-of-stake blockchain, in which users pledge their crypto to validate. Although the price of Ethereum is still up 50% year to date, it seems to have stalled out just below the psychologically important $2,000 price point. For Ethereum to head significantly higher, it may need yet another catalyst to excite investors.
Image source: Getty Images.
And that catalyst might involve crypto staking. In March, Ethereum carried out its first major technological upgrade since The Merge, and by most accounts, it has been a smashing success. The upgrade made it possible for investors to withdraw their staked Ethereum -- something that had been impossible until then. As a result, the upgrade was expected to lead to soaring popularity for staking on Ethereum.
And, indeed, that's exactly what we're seeing now. Since March, there has been a significant uptick in staking activity, both among retail and institutional investors.
The good news is that this enhanced staking activity could send Ethereum higher. In very simple terms, staking is a sign of support for a blockchain, so the more people who are staking, the better. Staking also reduces the number of coins that can be traded, and that shifts the supply-demand dynamic.
For crypto investors, one metric to watch is the percentage of Ethereum that is being staked, known as the staking ratio. Right now, the metric is only at 16%, meaning that only one in six Ethereum coins is being staked.
That low percentage makes sense, because Ethereum only recently became a full proof-of-stake blockchain. But other proof-of-stake blockchains have as much as 70% of their total coin supply staked. If Ethereum's staking ratio starts to move upward, all of that increased staking activity could help to push the price of Ethereum higher.
As a result, I'm watching this key Ethereum staking ratio throughout this month.
2. Solana
Solana has more than doubled this year after a truly disastrous 2022. Last year, Solana sank by more than 90% on concerns about contagion from the collapse of crypto exchange FTX. By the end of the year, Solana was trading for less than $10. So Solana's nearly triple-digit gains year to date are further evidence that this can be a very volatile crypto.
Even with recent gains, Solana is really just getting back to the same level where it was before the FTX meltdown occurred, never mind its all time high of $260 in November 2021. For that reason, this summer could be a pivotal time for Solana. Was the first half of the year just a proverbial dead cat bounce, or does Solana have breakout potential?
For Solana, the one metric that I'm watching is non-fungible token (NFT) sales volume. In 2022, Solana looked like it was gaining ground on Ethereum as the second-leading blockchain for NFTs. But the situation has deteriorated in 2023. Two prominent Solana NFT collections have decamped for other blockchains, and now Solana is struggling to find the one centerpiece NFT collection that can drive future growth. Ethereum, for example, has the Bored Apes and the CryptoPunks, but what does Solana have now?
Even worse, Bitcoin appears to have gained at Solana's expense. Based on 24-hour NFT sales volume, Solana now ranks behind Bitcoin, which has had phenomenal success with its new Ordinals NFTs. So I'm definitely keeping an eye on Solana's NFT sales numbers this summer.
In terms of growth potential, investors should keep an eye on Solana's new mobile crypto initiative. In April, Solana launched the new $1,000 Saga phone, which is designed to make Solana the preeminent blockchain for mobile crypto. The phone only became available to the public on May 8, so over the summer, we should start to see some new sales data on this phone. If the phone appears to be gaining traction with consumers, it would be a strong vote of confidence in Solana and its mobile crypto strategy.
Ethereum or Solana?
Solana has more breakout potential than Ethereum, but it comes with significantly more risk and volatility. We might have to wait a bit longer for some of Ethereum's new upgrade projects to bear fruit, but Ethereum is a much safer investment right now.
That said, I'll be carefully watching both cryptos this month. I've isolated key metrics for both, and any sign of substantial improvements in these numbers could be a strong buy signal.
