Forget Bitcoin and Ethereum. The true cryptocurrency star of 2021 was Solana (CRYPTO:SOL), a flexible crypto-computing platform for running decentralized apps (dApps).
Using a consensus mechanism called “proof of history,” to obtain improve high transaction speeds without sacrificing decentralization, Solana has become popular among developers and traders alike.
Thanks to these features, Solana has rallied over 546% over the last year, dwarfing the price movements of Bitcoin and Ethereum. Since inception, the price is up over 9,461%, hitting all-time highs of $260 in November 2021.
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The current outlook
Solana is currently down around 8% this last week as traders sold risky assets due to the current uncertain geopolitical climate caused by Russia’s invasion of Ukraine. This comes after a broad decline at the start of 2022 due to high inflation, a sell-off in tech stocks, and threats of multiple central bank interest rate hikes.
Despite the current environment of fear and uncertainty, Solana utilization remains high. When it comes to non-fungible tokens (NFTs), the number of launches on Solana has increased significantly, with more transactions on Solana based NFT marketplaces compared to Ethereum or Polygon.
Overall, the current outlook for Solana remains bearish. Currently trading at around $86, it has fallen over 50% YTD from a high of $173. Solana continues to test the $79.40 support level, and a failure here could spark another sell-off. Currently, Solana is trading below its 20 SMA of $92.30, which could indicate further bearish movements.
The future outlook
Despite the short-term volatility and losses, Solana’s long-term use cases remain strong. With a rank of #8 in terms of market cap, Solana has in its short term established a firm hold among its peers. Strong support from exchanges and fast transaction speeds have helped its adoption in the DeFi ecosystem.
Increasing institutional interest, continued high developer activity, and ongoing interest in NFTs will solidify Solana’s niche. When the economic and geopolitical environment improves, it is plausible that investors will flock back to risk assets, potentially causing a large rally in Solana’s price.
With 260 million Solana tokens released in circulation out of a total 489 million, the deflationary aspects of this cryptocurrency will play a large role in accelerating price increases in the future. Investors seeking out platforms with faster and cheaper transactions or better staking rewards will likely gravitate toward Solana.
The Foolish takeaway
Solana’s investors include some of the most prominent venture capital firms involved in the cryptocurrency space today: Coinfund, Parafi Capital, and Coinshares. The involvement of “smart money” points to a high degree of public conviction with respect to Solana’s future.
Investors looking to run smart contracts or mint NFTs will also enjoy Solana for its speed of 65,000 transactions per second, compared to Bitcoin’s seven and Ethereum’s 15, not to mention much lower gas fees.
Despite the large price run up of 2021, it is not too late for investors to buy Solana. The reversal of the last few months may have established a good entry point for new investors, whether for speculation or staking.
