Whether in the Short-Term or the Long-Term, Be Careful With Solana

Solana - Whether in the Short-Term or the Long-Term, Be Careful With Solana

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With crypto under pressure in recent days, you may think it’s a great time to “buy the dip” with Solana (SOL-USD). But you may want to think twice before buying it today. Whether as a short-term trade, or as a long-term investment. Why? External factors could continue sending it lower for now. On a longer timeframe, coin-specific factors could limit its ability to re-hit past all-time highs. Much less, make its way to new all-time highs. Put it all together, and it’s hard to say that it’s a screaming buy at present. First, let’s dive into what could affect its performance in the short-term.

Over the next few months, the Federal Reserve’s increasingly hawkish stance could put more pressure on cryptocurrencies. An asset that trades more in line with stocks than ever before, cryptos, are at risk of heading lower, as the cycling out of “risk-on” assets resumes. Established coins, like Bitcoin (BTC-USD) and Ethereum (ETH-USD), could see another moderate drop. More volatile altcoins, like SOL-USD, could see declines outsized compared to that of BTC-USD and ETH-USD. It’s already seen a larger drop than its peers over the past week. Bitcoin and Ethereum are both down around 14% during this timeframe.

Meanwhile, Solana is down over 22.5%. As the issue driving its drop (monetary tightening) isn’t on the verge of letting up soon, another big boost in the coming weeks/months does not appear likely. Unless, of course, we see a repeat of the “dead cat bounce” seen in mid-March. After breaking down the short-term forecast, let’s look at the long-term forecast. In short, a full comeback may prove difficult. This is due to the dimming of its “Ethereum killer” status. In large part, due to the network problems its blockchain has experienced in recent months.

If these issues crop up again in the future? It could further diminish its reputation as a superior platform to decentralized finance (DeFi) market incumbent Ethereum, Also, as another top “Ethereum killer,” Cardano (ADA-USD), rolls out its own scalability upgrade (Hydra), Solana could lose its main edge (faster speed, greater scalability). This could limit future adoption of its platform by developers. In turn, limiting the ability of its native coin to appreciate in price. I will admit, however, that there’s another way it could see increased adoption.

There is something else that could help its coin price rise in value over the long term: Its move into the digital payments space. In a recent article, my InvestorPlace colleague Mark Hake argued it could be a big catalyst for this coin. But even if you’re interested in Solana for its digital payments catalyst, there’s no pressing need to rush in. It’ll take time for this catalyst to (possibly) play out. In the meantime, external factors could keep on knocking it to much lower prices.

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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