Over the past 30 days, Solana (SOL -0.83%) has been one of the top-performing cryptos, up 20% compared to just 5% for Bitcoin. And that has led to renewed investor optimism for Solana, which had previously been a crypto darling before the so-called “crypto winter” hit last year. For the year, Solana is now up a staggering 136%.

The big question, of course, is whether the underlying fundamentals support the rapid price appreciation of Solana over the past nine months. Here’s a closer look at three factors that could lead to Solana soaring even higher.

Total value locked

Let’s start with a metric — total value locked (TVL) — that is routinely used as a quick way to measure the relative strength of any blockchain. Generally speaking, the higher the TVL number, the healthier the blockchain. And Solana has been absolutely crushing it lately. Solana’s TVL recently hit a new high for 2023, completely changing the narrative around Solana. A rising TVL number means that users are growing more confident about “locking” their funds on the Solana blockchain.

Investor looking surprised while looking at smartphone.

Image source: Getty Images.

The only caveat here is that Solana still only ranks No. 9 among all blockchains in terms of TVL. Ethereum (ETH -0.33%) is still the clear market leader, with 54.5% of all TVL in the blockchain space. By way of comparison, Solana commands a less than 1% market share. So, while rising TVL is a positive sign, it’s important to remember that Solana still has a long way to go before challenging Ethereum.

Institutional money flows

Another way to assess the relative strength of the Solana blockchain is by looking at institutional money flows. In other words, where are institutional investors choosing to park their money? According to a recent analysis by CoinShares, Solana has now emerged as the altcoin of choice for large institutional investors looking to diversify away from Bitcoin (BTC -0.28%). In 2023, Solana has now seen 27 weeks of net inflows compared to just four weeks of net outflows.

This figure is all the more impressive, considering how Ethereum seems to be losing ground with institutional investors. The world’s second-largest crypto has now seen seven straight weeks of net outflows, a clear signal that institutional investors are starting to look elsewhere. This is an interesting development to watch, since Ethereum has historically been the second-most popular crypto for institutional investors, trailing only Bitcoin.

New client wins

And, finally, Solana has seen a big boost from recent client wins. The new partnership that everyone has been talking about, of course, is the one involving financial services giant Visa Inc. (V 0.67%). In early September, Visa announced it would be using the Solana blockchain to settle USD Coin (USDC 0.00%) transactions. As more merchants begin to accept stablecoins as a form of payment, this partnership could become all the more valuable.

Moreover, Solana is now providing the same kind of functionality for Shopify Inc. (SHOP 2.80%) via its Solana Pay network. Basically, if you’re a Shopify seller and you choose to accept USDC as a form of payment, then any USDC transactions will be settled on the Solana blockchain. The big picture is that payment with stablecoins is becoming much more popular as evidenced by the launch by PayPal Holdings (PYPL 0.51%) of a new U.S. dollar stablecoin in August. The good news is that Solana is way ahead of this trend.

Solana has always been known for its ultracheap, ultrafast transactions. That’s the big reason why Solana was originally labeled a potential “Ethereum killer” right out of the gate; it seemed to do everything Ethereum could do but much faster and much cheaper. And now we’re starting to see real-world implementations of this technology. That should be exciting for investors focused on long-term growth.

Is Solana still too speculative?

While Solana seems to be seeing an improvement in its underlying metrics, as well as some high-profile client wins, let’s not get too far ahead of ourselves. After all, at a current price of $23, Solana is still 91% below its all-time high of $260. Moreover, Solana is still a very volatile digital asset. While Solana is up big for the year, a casual glance at this crypto’s trading chart shows some big swings both up and down over the past nine months.

That being said, I’m growing increasingly bullish on Solana’s prospects. As long as the numbers keep moving in the right direction, Solana could start to test its 52-week high of just under $40. If you are willing to accept the extra volatility, then Solana could be a high-risk investment that pays off big later.

Dominic Basulto has positions in Bitcoin, Ethereum, and USD Coin. The Motley Fool has positions in and recommends Bitcoin, Ethereum, PayPal, Shopify, Solana, and Visa. The Motley Fool recommends the following options: short December 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.

Leave a Reply

Your email address will not be published. Required fields are marked *