Market analysis

Solana’s renaissance: How sustainable is the SOL rally? 

6 min read

Over the last few weeks, Solana has enjoyed a bit of a revival. Having fallen from a peak of around $259 in November 2021 to a low of under $10 in December 2022, Solana’s native token SOL has now rebounded more than 300% to its current price of $40.90 (as of 6 November 2023). So what’s behind this rally and how sustainable are the recent gains?

A year of headwinds

Since the fall of crypto exchange FTX in November 2021, it has been touch and go for Solana. The early involvement of Sam Bankman-Fried, founder of FTX who was found guilty of fraud and money laundering last week following a nail-biting trial, tarnished Solana’s reputation. 

In addition, back in June, Solana was dragged into the legal battle between Coinbase and Binance and the Securities and Exchange Commission (SEC) when the watchdog labeled the SOL token an “unregistered security”, along with a handful of other altcoins. 

READ: The State of Crypto Report: October 2023 edition

The negative headlines and the fear that the blockchain wouldn’t survive without FTX’s backing kept SOL’s price at rock bottom. However, so far 2023 has witnessed a remarkable turnaround, with the token’s price more than quadrupling in value. The last 30 days alone saw the token skyrocket more than 75% (though its price remains 84% below the all-time high). 

Back to basics: Solana’s promising start 

Launched in March 2020, it took just over 18 months for the SOL token to rise from under $1 to its all-time high of $259.96 on 6 November 2021. Solana attracted investors with its promise to solve Ethereum’s biggest problems: scalability and the soaring cost of transactions. 

The blockchain’s aim was to process some 65,000 transactions per second (TPS) at a price of just $10 per 1 million transactions. Compared to Ethereum’s 15 transactions per second, which led to congestion that, at times, caused transaction costs to spike to $100, Solana was touted as a potential “Ethereum killer”.

READ: What is DeFi?

The collapse of FTX and the bear market in general dented investors’ confidence in Solana. FTX was one of its biggest investors, which raised questions over both its credibility

and its future prospects. It didn’t help that Solana also suffered repeated network outages and failed to deliver quite as high a TPS as promised (currently TPS is 4,493). 

Solana’s second breath

However, since then the network has seen several improvements and has gained the support of major industry players. This includes Shopify, which introduces a USDC payment option in collaboration with Solana, and the EUROe stablecoin launched on Solana by Finnish fintech Membrane Finance. Visa is also allowing its partners to send and receive USDC via the Solana network. These positive developments helped prop up the value of the SOL token this year.

Then, on 31 October 2023 during the Solana Breakpoint conference, Dan Albert, executive director of the Solana Foundation, announced the testnet launch of Firedancer, a new eagerly awaited validator client for the network. Slated for launch in H1 2024, Firedancer is expected to fix network outages and increase transaction throughput, helping Solana reach up to 1 million TPS.

READ: Wait, how can Yield App pay up to 11 % APY?

This announcement prompted asset manager VanEck to make a bullish prediction that SOL’s price could spike by up to 10,600% by 2030, reaching $3,211. The report said the Firedancer upgrade “promises to exceed Solana's current capacity by a factor of 10”.

Solana also boasts a thriving developer community. In fact, it ranks fourth in terms of the number of full-time developers, ahead of competitors like Cardano and Avalanche. This highlights Solana’s value as a potential Ethereum competitor now that the tide appears to be turning for the crypto market.

A word of caution

However, before reentering back into Solana, investors should also be aware of the inherent selling risks Solana is facing in the short term. As the fallout from the FTX-Alameda bankruptcy continues, FTX has already moved some $35 million worth of SOL tokens to exchanges, possibly with the intention to sell. Last week, FTX also reportedly unstaked another $67 million in SOL tokens, according to 21Shares. 

This means SOL is facing potential selling pressure in the coming weeks, as FTX looks to recover assets to repay its customers and creditors. Already, SOL’s value retreated by 9.2% from a recent high of $45.05 on 2 November to $40.90. Further volatility is likely in the short-term, so it’s important to never invest assets you can’t afford to lose into Solana (or any other cryptocurrency, for that matter).

Key takeaway

Solana has seen a stellar 2023 so far, jumping more than 300% in price since the beginning of the year. Institutional support, the upcoming launch of a crucial update, and a vote of confidence by a well-regarded asset manager helped to push its price 75% higher over the past month alone. If the Firedancer validator client truly brings the promised improvements, this could help Solana’s price skyrocket further.

However, VanEck’s extremely bullish price projection should be taken with a pinch of salt. After all, the digital asset industry has a long history of hype that fails to materialize. In addition, SOL faces potential selling pressure in the short term, which has already seen the token give up some of its recent gains. In short, caution is always warranted when making investment decisions. 

However, for those holding Solana or looking to buy into the token, Yield App now offers a staking yield of up to 4% on SOL. Head here for more details on our Solana Earn product to find out how you can make your SOL work even harder for you.

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