Putting money to work in the cryptocurrency market is back in style. The industry saw its value double in 2023, so some investors are trying to buy digital tokens that can supercharge their portfolio returns.
Look at Solana (SOL -5.78%). This cryptocurrency skyrocketed 963% last year, and it's currently the fifth most valuable blockchain network in the world.
However, Solana remains 67% off its peak price (as of Jan. 25). Does this mean it's a smart idea to buy it on the dip right now?
Unique features
When looking at a potential cryptocurrency investment, it's a good idea to figure out what makes a digital token stand out from the tens of thousands that are out there. With this perspective, it's safe to say that Solana is unique.
It includes functionality for smart contracts. This makes it similar to Ethereum and Cardano, and it opens up Solana to launch decentralized applications. In fact, Solana is in the top 10 on the list of cryptocurrencies with the most active developers, which bodes well for its future when it comes to introducing use cases.
Solana's greatest feature, though, is its incredible speed, with a theoretical throughput of 50,000 transactions per second (TPS). This puts it in the same ballpark as Visa, one of the largest payment networks in the world. In comparison, Ethereum is only able to process about 12 TPS. The way Solana orders its transactions, called a proof-of-history, requires less data. This also makes Solana a top blockchain when it comes to decentralized finance protocols.
Indeed, Solana is making a push in the payments industry. Solana Pay allows merchants and customers to transact directly with each other, using the native SOL token or a stablecoin, to facilitate transactions on the blockchain. With near-zero fees and instant settlement, the hope is that Solana Pay will achieve greater adoption. Integrating with Shopify should help in this regard.
Entering the hardware space
Besides services, Solana is trying to make a splash in the world of hardware. Last April, the Saga smartphone was released with a $1,000 price tag. This is a mobile device developed specifically for users to interact with web3 applications on the Solana network.
Recently, the Saga Chapter 2, which is a cheaper smartphone that costs $450, started taking pre-orders. Solana is trying to target a mass audience, but the project could be canceled if there's weak demand.
This hardware strategy is interesting. Consumer electronics is typically a very difficult business, and I wonder if there's that much demand for a crypto-specific smartphone. Only 20,000 Saga phones were produced. So it's difficult for me to see people wanting to buy this over an iPhone or top Android devices. But its progress is something to keep close tabs on.
Keep expectations realistic
It's still easy to see the favorable characteristics that might make Solana a potential portfolio addition, at least when it comes to your crypto exposure. Should things work out and Solana gain greater adoption, this digital asset could be worth significantly more a decade from now. At least that's what the bull case centers on.
But investors also need to set realistic expectations. The cryptocurrency industry, despite its enormous returns, is still full of uncertainty as to the ultimate outcome. There's still a meaningful chance that this entire technology won't even exist 10 years from now. Investors need to understand the risk that they are taking if they buy Solana.
And although you might have conviction in this cryptocurrency's prospects, it's always good to remember the extreme volatility that you will face. It's not going to be a smooth ride. For those who are bullish, perhaps initiating a tiny position is a smart approach.
