There’s Too Much Working Against Solana to Make it a Buy Right Now

The crypto market downturn that started in November is carrying on. Coins and tokens continue to drop in price. But among the major coins, Solana (CCC:SOL-USD) has seen one of the biggest drops. During this timeframe, the popular altcoin known for the high transaction speed of its blockchain is down 44% year-to-date.

Concept art of the Solana (SOL-USD) blockchain.

Source: Shutterstock

This, of course, is a sharper drop than seen with established coins Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD). Cardano (CCC:ADA-USD), another leading contender in the race to grab the decentralized finance (DeFi) crown from Ethereum, has also seen a big drop from its all-time high.

Yet, in contrast to all these names, Solana’s decline has intensified in recent days. Why? It’s not just the market’s move to “risk-off” investments that is putting pressure on SOL. Issues with its network are driving it lower, as well. Now back down to around $100 per coin (it was in the mid-200’s per coin back in November), bottom-fishers may see it as a screaming buy to grab while it’s knocked down.

Even so, you may want to think twice about buying. Not only could SOL continue to drop alongside other coins/tokens in this space, but its continued network issues may also call into question its “Ethereum killer” status.

The Latest With Solana

Before diving into coin-specific news with SOL-USD, let’s take a look at the market-related issues that have played a larger role in its price declines. So far, despite arguments to the contrary, crypto has failed to be a safe haven during high inflation.

Since the U.S. Federal Reserve (Fed) made it known it was raising interest rates, crypto has trended lower as investors shun riskier assets and cycle into less speculative assets. Although you can make the argument that now, with rate hikes known, the market has factored their impact into the price of coins/tokens, including Solana.

But what has played out recently in the market may be just the start. If the Fed ends up hiking rates greater than expected, the “risk-off” selloff could continue, pushing risky assets across-the-board from stocks to crypto down to even lower prices. To make matters worse, something else could wreak havoc on this asset class, too.

And that would be greater regulation from the U.S. federal government. All bets are off whether regulation helps, hurts, or has little impact on crypto prices. Yet, this extra element of uncertainty could help it stay volatile in the near-term. Unfortunately, there’s still another issue that could continue to affect SOL-USD prices.

The Takeaway From its Continued Network Issues

Besides the market volatility, issues with executing transactions on its blockchain have put pressure on Solana prices. If you recall, this isn’t the first time this network, one of the faster ones out there, has experienced issues.

Back in September, I detailed a major outage for SOL’s network that happened that month and lasted for 17 hours. At the time, I saw it as something that was not a deal breaker for this much talked-about altcoin. That is, with its greater network speed plus institutional backing, it remains a top “Ethereum killer” contender.

Yet, taking into account this latest issue, despite its scalability, speed, and transaction fee advantages, its reliability compared to other platforms may be up for debate. If we see more issues crop up like this most recent one, it may impact its ability to attract new developers to its platform.

Instead, these developers could decide to either stick with the market incumbent (Ethereum), or choose one of the other DeFi-compatible networks, like Cardano. In turn, this could shift the view that Solana is set to become one of the main players in this market. This will result in a continued drop in its coin price.

Bottom Line With SOL Stock

At present, it appears there is more in play to push SOL-USD lower rather than higher. The Fed’s continued move to raise interest rates could keep putting pressure on assets that rocketed higher in 2021, like crypto. There is plenty of substance to the “crypto winter” argument.

Network reliability concerns could also continue to dampen enthusiasm for this coin, once perceived to be one of the best of the “Ethereum killer” contenders. This, too, may result in it giving back more of its gains over the next few months.

Investors who are bullish on crypto in the long-term don’t need to close out positions and put their cash into safe harbors. If you believe the concerns about the crypto market discussed above are overblown, now may be a solid time to add to your portfolio. Still, that doesn’t mean you should include this name on your buy list.

Whether or not crypto continues to drop or starts to bounce back, steer clear of Solana. At least, until it fully resolves its network-related issues.

On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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