Solana is still up more than 50% year to date, but its incredible triple-digit returns from earlier in the year have completely disappeared. It is down nearly 25% over the past 30 days, and is clearly in dip territory.
While a "buy the dip" strategy for Solana might have worked in the past, there is no guarantee that it will this time around. The major factor here is the new regulatory turmoil in the crypto market. If you are willing to take on additional risk and have a long-term perspective, however, the current situation could be a unique buying opportunity.
The SEC vs. Solana
In May, the Securities and Exchange Commission (SEC) released a list of 46 cryptocurrencies that it believes to be securities, and Solana was not one of them. In early June, however, the SEC filed lawsuits against major cryptocurrency exchanges Binance and Coinbase Global (COIN 3.71%).
In those lawsuits, the SEC named Solana as one of the unregistered securities that these exchanges have been improperly offering to investors. In response to this news, it dropped like a rock, including more than 20% in a 24-hour period, as investors panicked that the government might soon be coming for Solana directly.
And, in truth, a direct SEC enforcement action against it would be disastrous. It would not mark the end of Solana, but it could have immediate consequences for market liquidity. Crypto exchanges might be tempted to de-list the token, making it much harder to buy and sell.
We've already seen a foreshadowing of this, with Robinhood Markets (HOOD 3.17%) announcing that as of June 27, it will remove Solana from the list of cryptos that users can buy and sell.
At the same time, the overhanging cloud of an SEC lawsuit could force the hand of many institutional investors, who would not want to be holding it anymore, potentially putting severe downward pressure on its price. According to some market analysts, this is what might have precipitated the recent 20% drop in price in just 24 hours.
Image source: Getty Images.
The good news, if you want to call it that, is that the crypto's backers have signaled their willingness to challenge the SEC. The Solana Foundation has already responded, highlighting all the ways that it is a token powering a decentralized blockchain, rather than a security.
Moreover, developers within the broader ecosystem appear to be mobilizing, with some even calling for Solana to fork (or split) into two different blockchains.
So I really don't think Solana is going to go down without a fight, and it is certainly not going to zero. At the very worst, we might get a scenario along the lines of what's happening now with XRP, which is exploring opportunities overseas even as it is locked in a lengthy ongoing lawsuit with the SEC.
Are there other growth catalysts?
If investors can get past the heightened regulatory risk that Solana now faces, there are plenty of reasons to be optimistic. For one, its ecosystem has been on a growth spurt in 2023. Although the FTX meltdown last year took a huge toll on the token, many of its underlying blockchain metrics -- such as transaction volume -- are starting to return back to pre-FTX levels.
The next wave of growth could come from its new mobile crypto strategy. In April, Solana debuted the first-ever "crypto phone" for a major blockchain, and its founders have been very upbeat about the ability of this new mobile crypto strategy to attract even more everyday users. The token also appears to be moving very aggressively into Web3, which could power additional growth.
How much risk is too much risk?
Buying Solana now is not for the faint of heart. Certainly, there is an enormous amount of regulatory risk. And nobody really knows how its new mobile and Web 3 strategies are going to play out.
That being said, the crypto still appears to be undervalued. At a current price of around $15, it is 94% below its all-time high. Solana was beaten up after the FTX meltdown, and now it is being roughed up by the SEC, if only indirectly. As contrarian investors know, the time to buy is when there's blood in the streets. And certainly, that seems to be the case now.
