Writing this article on Feb. 11, Solana (SOL-USD) is down 7.3%, extending the altcoin’s 12.2% decline for the week, and 31% for the month. I think it’s helpful to put a frame of reference around numbers like these because the world of cryptocurrency is fast moving.
However, that volatility works in both directions. Which means that by the time you read this, the outlook for Solana may have brightened considerably. Indeed, that appeared to be the case when Solana Pay launched on Feb. 1, 2022.
However, it appears that a high-profile cyberattack, the specter of inflation and rising interest rates, along with geopolitical tensions are proving too difficult for Solana to overcome.
That should concern you if you hold Solana. Because if the launch of what could be a real game-changer — new payments protocol that would enable shops to accept crypto payments directly from customers — is failing to move the coin’s price, it could be a harbinger of even more downward pressure to come.
Solana Pay is Very Intriguing
When I wrote about Solana for the first time in January, I was concerned that the platform might be running out of time to be the Ethereum (ETH-USD) killer with Ethereum expected to launch the completed Ethereum 2.0 experience sometime this year. At the time I wrote, “this (Ethereum 2.0) represents the larger threat to Solana. When you take the token aspect out of it, an investment in Solana is about investing in blockchain. Right now, it offers developers an advantage that justified its premium price.”
And if you sense a “but” coming, you’d be right because in my next sentence I suggested that it was reasonable to expect that Ethereum 2.0 might diminish that advantage. And what affect would that have on the price of the coin.
However, I’ll admit I missed the launch of Solana Pay. This platform will allow digital payments to be made with any stablecoin including the USD Coin (USDC-USD). And merchants will only be charged a fraction of a cent per transaction.
It would have made me more bullish about the prospects for SOL. But as it turned out it really didn’t matter. Solana has given up all the gains it made after Solana Pay debuted. And that leads me to the conclusion that there’s a bigger story developing.
When Down Should Be Up
Inflation may be making fools of investors of all stripes. As crypto prices surged during the pandemic, there was talk of digital currencies being a real inflation hedge. As trillions of stimulus spending would come home to roost for the greenback (and they are), crypto would only move higher.
That’s not happening right now. In fact, there’s a decent correlation between the movement of the major indexes and crypto charts. And in many cases, such as with Solana, crypto is dropping harder on a percentage basis than the broader market.
This was one reason why I’ve been a crypto skeptic. I wasn’t sure what would happen when the market suffered a sustained correction. Given the fact that I’ve wrong about many things regarding crypto, I was surprised that my intuition, for the moment, turns out to be right.
It still comes down to risk. It can be easy to dismiss risk when everything’s going up. But there was something disquieting about the certainty that was being expressed. There was something about the idea that this time was different that didn’t sit well.
Solana Faces a Crossroads
I’m not going to say we’re at the “if not now, when” point with Solana. The coin has already shown that it has a strong community behind it, as evidenced by the fact that it ranks in terms of market cap among cryptocurrencies. SOL should make the cut if/when the altcoin herd thins out.
However, what Solana Pay reinforces to me is that an investment in Solana is an investment in blockchain. It’s essentially buying stock in Solana Labs, Solana’s parent organization. When cryptocurrency starts being discussed, and traded, with that thought in mind, it may become more stable. Not as exciting perhaps, but right now we could all use a little less excitement.
On the date of publication, Chris Markoch 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 InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019.