Why Solana (CRYPTO:SOL) Dropped 11% Today

Solana (CRYPTO:SOL) is dropping along with the rest of the global capital markets.

| More on:
crypto blockchain

Image source: Getty Images

Solana (CRYPTO:SOL), the eighth-largest cryptocurrency in the industry lost over 11% of its value today. Over the past month it’s down 60%. Here’s why the digital asset is dropping like a rock and what investors should know about its future prospects. 

Why is Solana dropping?

Solana’s plunge could be driven by two reasons: the broader market correction and its network outage. 

The global capital market corrected today. Everything from Indian oil stocks to U.S. tech companies were trading negative on Monday morning. Crypto assets didn’t escaped this correction. Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH) have lost 1.5% and 7% respectively today. Smaller, lesser-known digital assets have experienced more severe drops. 

The fear of rising interest rates, coupled with tensions on the Russia-Ukraine border, has spooked investors. As liquidity evaporates and investors lose their appetite for risk, they’ve pulled capital away from digital and traditional assets. That’s one of the reasons why Solana dropped 11% today. 

However, another reason for the plunge is intrinsic. The Solana network suffered a devastating outage last week. Performance degraded on what the developers call the “mainnet-beta cluster,” which made any transaction on the network impossible for roughly 48-hours. 

This wasn’t the first time the Solana network faced technical issues. In fact, there have been several similar outages in recent months. These difficulties have undermined confidence in Solana’s ability to scale and service its growing base of users. 

What comes next?

The volatility of crypotoassets is not new. Over the past 12 years, Bitcoin has suffered numerous double-digit drawdowns. In fact, it lost roughly 30% of its value multiple times in 2021 alone. Smaller cryptos like Solana face even more volatility, which is why the correction in SOL is so much deeper today. 

However, the network outages are far more concerning. It could indicate a fundamental flaw in the network’s design. It also makes the network seem less reliable and secure for new adopters. By comparison, Ethereum has never had an outage. Same for Bitcoin. 

Although legacy cryptoassets like BTC and ETH have some flaws (high fees, slower transactions, etc.) their framework is time-tested. These assets are also much less volatile due to the size of their user bases. As mentioned earlier, BTC and ETH are down only single-digits today. Over the past month, they’ve both retained more value than Solana. 

Solana’s stumbles also dim its prospect of disrupting Ethereum. Developers may want to reconsider building their decentralized finance (DeFi) products and non-fungible tokens (NFTs) on Solana in light of these outages. 

Long-term investors should consider these factors as they make allocations during this bear market. 

Bottom line

Solana is plunging along with the rest of the global capital market. It’s down 11% today and 60% over the past month. However, this performance has been partially driven by network-related issues. Solana’s outages and volatility could make rivals like Ethereum a better bet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani owns Bitcoin and Ethereum. The Motley Fool owns and recommends Bitcoin and Ethereum.

More on Cryptocurrency

Coworkers standing near a wall
Cryptocurrency

Ripple Lawsuit: Wins Aren’t Moving XRP

Ripple Labs appears to be winning its lawsuit, but the price of XRP (CRYPTO:XRP) isn't moving. Why's that?

Read more »

Big Bitcoin logo.
Cryptocurrency

Warren Buffett Slams Bitcoin: Is He Right This Time?

Warren Buffett recently slammed Bitcoin (CRYPTO:BTC). Is he right?

Read more »

crypto, chart, stocks
Cryptocurrency

Where Is Polkadot Headed in 2022?

Here's why Polkadot (CRYPTO:DOT) may be headed higher during the latter half of this year, following a dismal start to…

Read more »

A stock price graph showing declines
Cryptocurrency

Struggling Cryptos: Market Cap Falls 3.37% Overnight  

The global crypto market lost a significant amount of its market cap overnight, as the selling pressure on cryptocurrencies continue.

Read more »

Bitcoin
Cryptocurrency

Bitcoin Tanks 38% in 2022: Buy It Cheap?

Bitcoin has fallen considerably this year, and it might be worth investing in at a discount for stellar returns.

Read more »

Person Hands Opening Mailbox To Remove Newspaper
Cryptocurrency

XRP vs. SEC Lawsuit: Some Interesting Developments

The summary judgment in the ongoing legal battle in the cryptocurrency market might come in 2023, not this year.

Read more »

crypto blockchain
Cryptocurrency

Is XRP the Large-Cap Crytpocurrency to Own Right Now?

Let's take a deeper look at whether XRP (CRYPTO:XRP) is a digital token worth investing in at this particular juncture…

Read more »

thinking
Cryptocurrency

Can the Ethereum Merge Take This Token to New All-Time Highs?

Here's a dive into what the upcoming Ethereum merge is and why investors may want to pay attention to this…

Read more »