With all the attention that Bitcoin has gotten recently, primarily because of the long-awaited approval of spot exchange-traded funds, investors might have forgotten some under-the-radar digital assets.

Solana (CRYPTO: SOL) is one of them. The innovative cryptocurrency has been a huge winner. In the last three years, its price has soared 1,390%, turning $1,000 into $14,910 right now. The blockchain network’s market cap today is $42 billion, the fifth highest in the world.

Let’s take a look at Solana over the past few years before figuring out if this cryptocurrency makes for a smart investment today.

It’s all about speed

Like Ethereum, Solana was built with functionality for smart contracts, which immediately boosts its potential for utility. And Solana’s transactions are processed with a proof-of-stake mechanism.

But what stands out is its proof-of-history technology. This reduces the amount of data needed on each block by changing how time is recorded, which leads to fast processing times. Solana can theoretically handle 50,000 transactions per second. That’s in the neighborhood of credit card giant Visa and its throughput of 65,000.

Despite what appear to be some innovative qualities in the crypto space, Solana is still exposed to the whims of the broader market. The token skyrocketed more than 11,000% in 2021 during the monster bull run, only to crash 94% the following year. Then, it rose 963% in 2023. This is the nature of crypto assets.

Potential use cases

It’s easy to get caught up in all the financial speculation happening in the crypto market, but what will ultimately matter is if these networks find ways to introduce valuable use cases that gain broad adoption. Solana is trying hard to achieve this.

In what I view as a unique strategic move, Solana developed and released a web3-based smartphone called the Saga that looks eerily similar to an iPhone. The goal is to have decentralized apps built in, as well as a crypto wallet, that makes it seamless to interact with the web3 world.

Another lower-cost phone is in the works. The so-called “Chapter 2” had 25,000 pre-orders within the first 24 hours after launch. That’s better than zero, but it’s not even remotely close to being considered mass-market appeal. I’m not sure consumers will gravitate to this device en masse when the iPhone still reigns supreme.

However, Solana’s speed and low costs might make it a popular tool in the payment realm. Solana Pay is a direct merchant-to-consumer solution that allows for instant settlement, no fees, and the possibility to layer on cool features like non-fungible tokens. I think this is an area where the crypto has legitimate potential, no matter how slim the chances of outsized success are.

Should you buy Solana?

Solana has taken care of its investors over the past three years. But the digital asset is currently 63% below its peak price, which was set in November 2021, right before the crypto bubble burst. For the most bullish Solana supporters out there, this could be a fantastic time to buy the token.

Just understand a couple of things before doing so. For starters, there will continue to be extreme levels of volatility. Don’t be surprised if Solana experiences drawdowns of 50% multiple times.

And maybe more importantly, what Solana ultimately ends up looking like 10 years from now is anyone’s guess. In other words, there is so much uncertainty, as no one knows what will happen over the long term with cryptocurrencies.

So, you should only invest a dollar amount that you are comfortable losing.

Should you invest $1,000 in Solana right now?

Before you buy stock in Solana, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Solana wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

See the 10 stocks

*Stock Advisor returns as of February 5, 2024

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and Visa. The Motley Fool has a disclosure policy.

If You Invested $1,000 in Solana in 2021, This Is How Much You’d Have Now was originally published by The Motley Fool

Leave a Reply

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