Virtually every cryptocurrency has tumbled from its highs. While every cryptocurrency is unique, they still seem to trade together in the market. That goes for Ethereum (ETH 2.00%) or Ether, and Solana (SOL 0.92%), two of the most prominent altcoins.
Ethereum and Solana are 55% and 65% off their all-time highs, respectively.
The tricky part of investing in crypto is that there is little to support token prices. There's no underlying business with earnings, or hard assets, such as land or precious metals. Therefore, crypto prices are prone to drastic fluctuations, as are investor emotions.
In past crypto bear markets, buying at peak fear has worked well for investors. Nobody knows whether this time will be different. That said, investors can gauge which of these two cryptocurrencies has more upside moving forward.
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Breaking down which cryptocurrency is better for which applications
First, it's important to know the difference between Ethereum and Solana. From there, investors can pair each with real-world factors that may make them valuable.
Ether is the native token for the Ethereum blockchain. It has the most total value locked of any blockchain, approximately $56 billion, and is known for its widespread developer support. Ethereum often powers other tokens that don't run on their own blockchain, and is a leader for smart contracts.
Solana's blockchain has just $6.7 billion in total value locked, yet it processes far more transactions daily. While Ethereum has had to scale its network to handle more transactions, Solana is a natively fast blockchain that can handle thousands of transactions per second at almost zero cost. That makes Solana ideal for high-frequency applications, such as processing payments.
CRYPTO: ETH
Key Data Points
Ethereum's ecosystem already benefits from network effects
Ultimately, demand created by real-world usage is most likely to drive token prices higher over the long term.
There are exciting opportunities in tokenization, especially for stablecoins, and both blockchains are seeing adoption. Numerous researchers have estimated that on-chain tokenized assets will soar into the trillions of dollars over the next five to 10 years.
Thus far, Ethereum's wide-reaching network and developer ecosystem are creating a network effect, where leadership builds trust with institutions, which in turn attracts more development and investment to the blockchain. The Ethereum ecosystem hosts over half of the world's stablecoins and tokenized real-world assets.
Solana is also gaining ground with institution-level applications. For instance, The Western Union Company is launching its U.S. dollar-denominated stablecoin on Solana. However, Solana also hosts numerous meme tokens, which can be volatile at best and often fizzle out. Solana needs to continue to see institutions build on its blockchain in the coming years.
CRYPTO: SOL
Key Data Points
Which cryptocurrency has more upside?
On the surface, it's hard not to like Solana's raw upside. At a market cap of just $52 billion, it's much smaller than Ethereum's $261 billion. When you factor in its lightning-fast network speed and low transaction fees, it's easy to see how Solana could gain far more developer traction in the future. Western Union's stablecoin highlights that.
But it's not wise to focus on raw upside without contemplating the potential downside. Network effects are some of the most powerful competitive advantages and are difficult to unwind. Ethereum's ecosystem already boasts strong support and adoption.
It seems like a no-brainer that Ethereum has a higher investment floor than Solana. Since cryptocurrencies are very speculative assets to begin with, it may not be a bad idea to go with one with a bit higher floor. Solana has more upside, and one could simply own both. That said, Ethereum looks like the better cryptocurrency to buy and hold right now, especially as tokenization gains steam.
