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Recent Network Shutdown Show Solana Investors They Always Need a Plan

Someone at Solana (CCC:SOL-USD) didn’t get the memo: If you’re an up-and-coming product or service of any kind, avoid events like the 24-hour shutdown of the entire blockchain network.

Concept art of the Solana (SOL) blockchain.
Source: Shutterstock

In the wake of that faux-pas, InvestorPlace’s Mark Hake recently argued that if a second shutdown occurs, it could be game over for what is the sixth-largest cryptocurrency by market capitalization, at $42.2 billion as I write this.

However, when you consider the troubles China Evergrande Group (OTCMKTS:EGRNF) is facing over its $300 billion in debt, the problems Solana Labs’ SOL-USD token has encountered seem trivial in comparison. 

If you own Solana, remember that it could always be worse. And if you are thinking about buying SOL-USD on the dip, here’s why you might want to have a plan.

Solana Could Fall Further

The blockchain network went down at approximately 8 a.m. on Sept. 14. However, it returned to service early the next day. In those 17 hours, SOL-USD lost and regained most of its value. 

Ultimately, however, despite returning to service, Solana’s coin has lost approximately 14% of its price from the time it went out early in the Sept. 14 workday to a week later as I write this. 

That’s about $2.7 billion based on a circulating supply of 297.1 million. But, as I said above, compared to China Evergrande’s financial woes, the decline should feel like a walk in the park. 

If you look back on the cryptocurrency’s trading over the past month, you will see that its decline started on Sept. 9, five days before the outage struck, hitting close to $213, before falling to a low of $137 a couple of days after the outage ended. 

To be sure, except for its two-week slide, long-time holders of Solana ought to be thrilled with the gains they’ve amassed so far in 2021. Up 9,238% year-to-date, I’m not sure how anyone could complain about such a return. 

If you compare Solana’s performance to the best-performing stock (market capitalization greater than $10 billion) in 2021, you’ll see that its performance is five times better than AMC Entertainment (NYSE:AMC), which is, without a doubt, the most successful meme stock of the year.

So, just because the outage is in the rearview mirror, I don’t think it’s realistic to believe Solana will immediately resume its climb back to $213. Instead, the volatility will likely accelerate as doubt creeps into the minds of investors. 

Have a plan to buy on future dips and you should do well in the long term. Here’s why I feel this way.

A Lesson Learned

In a mid-July article about Solana, I discussed the first-mover advantage enjoyed by Ethereum (CCC:ETH-USD) and how that would make it difficult, but not impossible, for Solana to displace the world’s second-largest cryptocurrency and its blockchain technology. 

Of course, I was also comparing Solana to Cardano (CCC:ADA-USD), the world’s third-largest cryptocurrency at $70.3 billion. At the time, Solana was the ninth-largest while Cardano was the fourth-largest. Since mid-July, Solana’s moved up three positions compared to a one-position gain by Cardano.

As I said, Solana’s come a long way in a short period. Nevertheless, I finished my article on an optimistic tone for both cryptocurrencies.

“Solana appears to be making great strides as a utility for DeFi DAPPs. For this reason, I think Solana has an excellent chance at moving higher over the next year. Just don’t expect it to pass Cardano any time soon,” I wrote on July 13. 

“And definitely not Ethereum.”

I don’t think anything’s changed in the 10 weeks since. If anything, Solana Labs has been humbled by the shutdown

“This is something we’ve seen over and again in the cryptocurrency markets since they’ve become a phenomenon,” Teddy Fusaro, president of Bitwise Asset Management, told Bloomberg on Sep. 18. “And it does reflect how new the industry is, that the industry needs to scale.”

Whatever Doesn’t Kill ‘Ya

The developers involved with Solana will take what’s happened and learn from it. In my mind and the mind of others, that is a win/win for everyone involved. 

“One of the biggest challenges is seeing how systems react in various unique situations in real-time,” Bloomberg reported Ava Labs CEO Emin Gün Sirer saying about the shutdown. “Developers across the community can forecast and prepare for every event with extensive modeling and testing, but you can never be 100% certain.”

Solana got a real-time test that should make it stronger in the future. 

You know what they say, “What doesn’t kill you makes you stronger.”

No wiser words were ever spoken. So Solana ought to be okay. But, of course, that’s not the same as perfect. Govern yourself accordingly. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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