Solana Is Plummeting–Should You Buy or Avoid?

Solana cryptocurrency is plummeting. Should you buy it or stick to the Purpose Ether ETF (TSX:ETHH) instead?

| More on:
crypto blockchain

Image source: Getty Images

Solana (CRYPTO:SOL) has been in a freefall over the last month, having gone from US$174 on December 30 to US$94 on Sunday–a 45% decline. There were no specific catalysts to explain the bearishness in SOL during the period. January was a weak period for the markets overall, with stocks and crypto both falling steeply. The NASDAQ slid 13% in the first 28 days of January, and crypto fell even more than that. For the month of January, Bitcoin slipped by 19%. It appears, then, that Solana mainly fell due to worsening sentiment toward the markets as a whole. Cryptocurrencies are all correlated with each other, and have been correlated with tech stocks recently too. So, it shouldn’t be surprising that Solana sold off in January. The asset class it belongs to sold off as well.

That still leaves open the question:

Is Solana a buy?

Solana is a cryptocurrency with many built-in advantages. With fast transaction times, low fees, and an engaged developer community, it is one of the most talked-about cryptocurrencies out there. It is currently the seventh biggest crypto by market cap, fifth if you don’t include stable coins. So, on paper, it seems to have a lot of promise. Does that make it a buy though?

Solana’s advantages

Solana has a number of advantages compared to other cryptocurrencies that may make it desirable. These include:

  • High speed
  • Low “gas” fees
  • Ability to create smart contracts

Because of the advantages above, Solana has often been compared to Ether (CRYPTO:ETH), a crypto that itself holds some of these advantages compared to Bitcoin. Indeed, Solana is often touted as an “Ethereum killer” among its fans. However, there is one hurdle it will have to overcome if it is to legitimately claim that title.

ETH will soon catch up

One problem with Solana right now is that its transaction time advantage won’t last long. Ethereum developers are currently working on a series of upgrades that will facilitate “1,000s of transactions per second.” Official documentation doesn’t clarify exactly how many transactions will be allowed, but some sources online peg it at 100,000. That would beat Solana’s 65,000 transactions per second and eat into the main advantage it has over Ethereum right now.

Don’t forget taxes

One thing you should always keep in mind with crypto investments is taxes.

Under Canadian law, cryptocurrencies like Solana and Ether are subject to capital gains tax. That means that half of your gain is taxed at your marginal tax rate. If you’re a rich person in the highest tax bracket, you can pay up to 26% in capital gains tax on crypto.

Large, established cryptocurrencies have a way to get around that:


Through the Purpose Ether ETF (TSX:ETHH) you can buy and hold Ether on the stock market. This means that you can shelter your ETH in a TFSA, and pay no taxes on it. You do pay ETHH’s managers a 1% annual fee for the privilege of them holding Ether for you, but if it makes gains, you could pay a lot more than that in capital gains tax.

Canadians currently have no such vehicle for investing in Solana. VanEck does offer a SOL ETF, but it isn’t currently supported by Canadian brokers. So if you want to hold crypto tax-free, then Solana may not be the best bet for you.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns and recommends Ethereum and Bitcoin.

More on Cryptocurrency

crypto, chart, stocks

2 Top Cryptocurrencies to Buy in October 2022

Ethereum and Solana are two of the most popular cryptocurrencies in the world that are well poised to deliver substantial…

Read more »

Hand arranging wood block stacking as step stair with arrow up.

2 Cryptocurrencies to Buy for Potential Recovery

The largest and most liquid cryptocurrencies may not always be the first to recover, and you may have to go…

Read more »

Senior couple at the lake having a picnic
Tech Stocks

3 TSX Stocks That Are Great Long-Term Picks

October is a ripe time to buy growth stocks for wealth creation. Use the market downturn to tap the recovery…

Read more »

cryptocurrency, crypto, blockchain
Tech Stocks

Sinking Crypto Stock: Is Hut 8 (TSX:HUT) Worth Buying at $2.30?

A prominent crypto stock trading at an absurdly cheap price, but you must have a high-risk appetite to consider buying…

Read more »

sad concerned deep in thought

Is Coinbase Stock a Good Bet for Cryptocurrency Investors?

Coinbase stock is down 80% from all-time highs, but the U.S.-based cryptocurrency exchange is still one of the largest platforms…

Read more »

Big Bitcoin logo.

Will Bitcoin Ever Shift to a Proof-of-Stake Model?

Following Ethereum's (CRYPTO:ETH) Merge, will Bitcoin (CRYPTO:BTC) adopt a proof-of-stake consensus mechanism or stand pat?

Read more »

cryptocurrency, crypto, blockchain

HIVE Blockchain (TSXV:HIVE) Stock: Is it Cheap or a Falling Knife?

HIVE Blockchain Technologies Ltd. (TSXV:HIVE)(NASDAQ:HIVE) is a crypto miner that looks undervalued in the face of major volatility.

Read more »

A depiction of the cryptocurrency Bitcoin

Bitcoin: Why Interest Rate Hikes Change Everything

The higher interest rates go, the further Bitcoin (CRYPTO:BTC) will fall.

Read more »