Solana’s native token, SOL, experienced a significant 18% increase in value in the week leading up to February 13th. This surge in price allowed Solana to surpass its competitor BNB in terms of market capitalization, securing the third spot, excluding stablecoins.
The rise in SOL’s value can be attributed to airdrops and the network’s ability to offer a more affordable and user-friendly solution compared to other platforms. However, the question remains: are these factors enough to justify a rally towards $120 and beyond?
Experienced cryptocurrency investors argue that Ethereum’s network rollup solutions provide sufficient scalability and cost reduction to maintain investor interest. However, new participants in the market may find Solana’s user experience to be much simpler. The same can be said for non-fungible token (NFT) launches and airdrops targeting a large number of addresses. Historical data shows that even layer-2 solutions experience increased transaction costs or delays during peak demand.
It is worth noting that Solana was unaffected by a recent network outage. On February 6th, the network faced a 5-hour downtime, leading validators to coordinate a software update and restart from a specific slot. During this time, exchanges also paused deposits and withdrawals of SOL and Solana SPL tokens, impacting users’ ability to interact with decentralized applications (DApps). Over the past two years, the Solana network has experienced twelve similar outages.
On a positive note, Solana can implement upgrades at a much faster pace than Ethereum Virtual Machine (EVM) compatible networks by closely coordinating software development. While it takes Solana developers a few hours to develop, test, and implement a new validating software solution, a similar effort can take years on the Ethereum mainnet. This key difference explains why SOL token was not affected by the recent network downtime.
To determine whether SOL’s rally above $110 is sustainable, it is important to analyze Solana network activity, which typically drives SOL demand. SOL price tends to follow Bitcoin’s price and broader cryptocurrency market trends.
However, the initial analysis of DApps activity is not favorable for the Solana network. Data from the past 7 days shows a 29% decrease in the number of active addresses and only a 4% increase in volumes. In contrast, BNB Chain and Polygon experienced nearly a 30% increase in DApps volumes, according to DappRadar. Although SOL and BNB tokens have similar market capitalization, Solana’s activity is significantly lower than that of BNB Chain. This raises concerns about the sustainability of SOL’s path above $120 and its subsequent valuation of $52.5 billion in the medium to long term.
While this data does not indicate a significant risk of a sharp SOL price correction, it does prompt investors to question the long-term sustainability of these price levels. SOL bulls, however, remain confident in the network’s capacity, as evidenced by the 91.4 million transactions processed in the last week alone. The network’s ability to attract DApps activity, whether driven by airdrops or not, could be the deciding factor in SOL’s future performance.
It is important to note that this article does not provide investment advice or recommendations. All investment and trading decisions involve risk, and readers should conduct their own research before making any decisions.