Solana (CRYPTO: SOL) has taken investors on a wild ride since its first block was created on March 16, 2020. The cryptocurrency launched at $0.95 and soared to an all-time high of $260.06 on Nov. 6, 2021, but now trades at about $165.
At first, Solana’s blockchain attracted a lot of attention from developers as a faster alternative to Ethereum (CRYPTO: ETH). But Solana subsequently suffered a series of network congestion and security failures, and the failed cryptocurrency exchange FTX — one of its biggest investors — hastily liquidated its holdings to raise more cash to pay off its creditors. As it suffered those setbacks, rising interest rates broadly crushed the cryptocurrency market.
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However, Solana’s price has risen more than 60% this year as the macro environment has stabilized and investors have warmed up to cryptocurrencies again. Therefore, it could be a good idea to buy Solana while it’s still under $200 for three simple reasons.
1. Potential ETF approvals are in the cards
The U.S. Securities and Exchange Commission (SEC) recently cleared the way for the first spot price Ether ETFs to file their public listings. Those ETFs won’t start trading until their S-1 filings are approved, but the decision could pave the way for the approvals of Solana ETFs, because Solana uses the same proof of stake (PoS) mining method as Ethereum.
The SEC previously argued that only Bitcoin (CRYPTO: BTC) could be classified as a commodity and cleared for spot price ETFs because its proof of work (PoW) method was more similar to the act of physically mining precious metals. The agency argued that although the PoS method was more energy efficient, it was also more similar to securities trading.
But by greenlighting the market’s first spot price Ether ETFs, the SEC has essentially admitted that Ether is a commodity and the PoS method can be tethered to spot prices. That sets a strong precedent for the agency’s future approvals for ETFs holding other PoS tokens like Solana. We probably won’t see any serious discussions about Solana ETFs until the first Ether ETFs actually arrive, but that anticipation and buzz could drive its price a lot higher this year.
2. The expansion of its ecosystem
Solana uses the same PoS mining method as Ethereum, but it accelerates the process with its own proof-of-history (PoH) method. That key difference enables Solana to process transactions at a much faster rate than Ethereum, and it’s been gaining a lot of attention as an alternative way to develop decentralized apps, tokens, and payment services.
Solana has already been used to develop decentralized exchanges like Jupiter and Orca, and it remains a popular platform for launching meme coins like BONK and WIF. Larger e-commerce and fintech companies have also been linking their services to Solana. Shopify (NYSE: SHOP) integrated its Solana Pay payment protocol into its own e-commerce services last year, Visa (NYSE: V) now runs its stablecoin settlement program on Solana’s blockchain, and PayPal (NASDAQ: PYPL) recently tethered its own USD stablecoin to Solana to facilitate “faster and cheaper” transactions.
The ongoing expansion of that ecosystem should limit Solana’s downside potential and make it a top token to buy as the cryptocurrency market warms up again.
3. Stabilizing interest rates
Rising interest rates drove investors away from cryptocurrencies and other speculative investments throughout 2022 and most of 2023. However, that crypto winter is gradually ending as interest rates stabilize. Once the Federal Reserve starts cutting interest rates again, speculative investors will likely pivot back toward the leading cryptocurrencies.
Rising interest rates have already wiped out many smaller altcoins, but Solana remains the second-largest PoS token in the world, with a market capitalization of nearly $77 billion. It’s also the fifth-largest cryptocurrency overall, and it will likely keep growing as more investors recognize its fundamental strengths.
But investors should brace for a lot of volatility
Solana has a bright future, but it will likely remain volatile in the years to come. Investors who can stomach the volatility should accumulate Solana while it’s still trading under $200, but it could easily be cut in half before it doubles or triples.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, PayPal, Shopify, Solana, and Visa. The Motley Fool recommends the following options: short June 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
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