After its incredible rally since August, Solana (CCC:SOL-USD) has gone from dark horse to favorite in the battle to grab the DeFi (decentralized finance) crown from Ethereum (CCC:ETH-USD).
With a market capitalization of $73.3 billion, Solana is more valuable than Cardano (CCC:ADA-USD), which previously was the highest ranked of the so-called “Ethereum killers.” So, with Solana now behind just Bitcoin (CCC:BTC-USD), Ethereum, and Binance Coin (CCC:BNB-USD) in terms of value, has Solana peaked in price?
Yes and no. On the one hand, following Solana’s recent hot run, it may simmer down for awhile. Traders could cash out, and latecomers, feeling they’ve missed the boat, may be hesitant to buy the cryptocurrency near its all-time highs.
On the other hand, while Solana may trade sideways or head lower in the short-term, investors seeking long-term crypto plays may want to take a look at it.
That’s because Solana’s advantages over Ethereum could enable the challenger to become the dominant DeFi cryptocurrency. But let’s say that Solana doesn’t attain that accomplishment and simply becomes a close rival of Ethereum. In that case, Solana could still be worth many times what it trades for today.
Don’t Give Up on Solana Too Easily
Earlier this year, when Solana was trading for around $30 per token, crypto aficionados began to dive into it. They mostly did so because they thought that it could become one of the top “Ethereum killers,” thanks to its obvious speed and transaction fee advantages.
But now, after it zoomed up more than eight-fold to around $247 per token, many who bought it early on could be looking to take some risk off the table. As a result, in the short-term, the number of sellers of the tokens may exceed the number of buyers. That will especially be the case if potential buyers are biding their time, waiting for a pullback.
Consequently, the tokens may fall back to $200 or stay steady around their current level of $240-$250. However, such a scenario won’t indicate that “the party is over” for Solana.
The crypto will become significantly more valuable through 2021, and its best days remain ahead of it. And it has a solid chance of supplanting Ethereum and becoming the dominant crypto in DeFi. But in any scenario, it can reach the same level as Ethereum in terms of popularity and usage, likely enabling its price to jump by at least 100%.
Solana Is Poised to Win Big in All Likely Scenarios
The most appealing aspect of Solana is the fact that its developers have seemingly built “a better mousetrap.” With its unique “proof of history” protocol, theoretically it could process as many as 65,000 transactions per second.
Even with its recent upgrades, Ethereum has a long way to go before it can catch up to Solana’s speed. But speed is not the only reason why Solana could someday leave Ethereum, which is currently dominant in DeFi, in the dust.
Transaction fees are another area in which Solana has a clear-cut advantage. According to Coindesk.com, Ethereum’s transaction fees have jumped more than 100% in the past few weeks alone and have soared 2,300% since late June.
That, of course, bodes well for Solana. Due to its significantly lower transaction fees, DeFi and decentralized app developers are flocking to its blockchain. Solana is also catching up to Ethereum in terms of its share of the NFT (non-fungible token) market. All of this suggests that it has a solid chance of grabbing Ethereum’s current place in the crypto pecking order.
On the other hand, once Ethereum is done with its upgrades, it will be able to more easily stay ahead of its would-be “killers.” And as another InvestorPlace columnist, Mark Hake, recently argued, Bitcoin’s Taproot upgrades could entice the developers of decentralized apps to flock in droves to its network. In short, the established coins could crowd out Solana, limiting its growth potential.
Then again, that may not happen, since the overall growth of DeFi could more than make up for the rising competition. That growth may enable Solana to at least become as strong as Bitcoin and Ethereum. In that scenario, the price of the cryptocurrency would soar 100%-500%.
The Best Way to Handle Solana
Before you run out and buy Solana, remember that its volatility will likely remain high. That’s not only because of traders taking profits, but also due to the risk of another network crash like the one that it experienced in September happening again. Nevertheless, its long-term potential more than makes up for its risks.
Whether Solana supplants Ethereum, or merely rises to its level, it has a good chance to be a winning, long-term crypto play.
On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.