Two weeks ago I wrote that Solana (SOL-USD) looked very cheap and was likely to move off its trough price. In my article, I said excessively negative investor sentiment was pulling SOL down and it was not likely to last.
At the time, it was trading below $100, with a price of $94.96 on Jan. 22. But as of Feb. 9, it was at $113.33, up 19.3% from that time. Investor enthusiasm for the crypto is now starting to return.
Moreover, from its trough price of $82.71 on Jan. 24, Solana is now up 37%. This shows that SOL is clearly rebounding from its trough price level.
But it is still well off both the year-end price and its peak price from three months ago. For example, on Dec. 31, Solana was at $172.10, so year-to-date (YTD) it’s down 34.1%. From its peak price of $258.93, it’s down 56.2%.
Where This Leaves Solana
Solana is an extremely popular Ethereum (ETH-USD) competitor for smart contracts, decentralized finance (DeFi) apps and non-fungible tokens (NFTs). Its purpose is to facilitate the creation of decentralized apps (dApps).
Recently, Solana has been moving into the wallet space. This is based on the collaboration between Solana Labs and Web3Auth. They announced a digital wallet initiative designed to eliminate technical obstacles for consumers to set up wallets and move into the DeFi space.
As a result, Solana is now the eighth-largest cryptocurrency with a market capitalization of $36 billion. This puts it neck-and-neck with the market cap of Cardano (ADA-USD) at $40 billion.
It is also well off its $55 billion market capitalization reached at the end of 2021. So there is still plenty of room for SOL to move higher in the near term.
Analysts are now very positive about Solana. One group, Morgan Creek Capital Management, believes it is one of the few coins that can survive a crypto winter.
The Solana Pay Launch
One reason Solana is expected to last is that it’s always expanding into new territory. For example, last week, parent organization Solana Labs announced the launch of Solana Pay. This is its first launch into the crowded digital payments space, as described by CryptoPotato.
In its announcement on Feb. 1, Solana Labs describes in an example how its new Solana Pay dApp will usher in a new era of payments and commerce. The example is based on an era when “digital currencies are prevalent and digital money moves through the internet like data – uncensored and without intermediaries taxing every transaction.”
Moreover, the reason why this product has the potential to catch on is its ability to lower costs dramatically for both consumers and merchants. Here is what Solana Labs says about its costs:
“The protocol provides a specification that allows the consumer to send digital dollar currencies, such as USDC, from their wallet directly into the merchant’s account, settling immediately with costs measured in fractions of a penny.“
If this “fractions of a penny” analogy is correct, it will have to be more specific. For example, Cash App, run by Block (NYSE:SQ), charges 2.75% to merchants to process a transaction. That is 2.75 cents for every dollar.
So, if the Solana Pay app catches on and its cost is, say, 0.50%, that could save merchants (and ultimately consumers) 82% of their existing costs. This is seen by using the following formula: 1- (0.005/0.0275) = 1-0.1818=0.818, or 81.8%.
What to Do With SOL Crypto
If Solana Pay takes off, look to see SOL move substantially higher. For example, Block has a market cap of almost $65 billion. This is just 80% over Solana’s $36 billion market cap. Even if it picks up half of that 80% upside, its market value could rise 40% more to $50 billion.
In that case, Solana would be worth $158.70 for each of its tokens. For most people, making a 40% upside in a crypto is a very good prospective return on investment.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.