Solana’s native token, SOL, experienced a remarkable 18% surge in the seven days leading up to February 13th. This surge propelled Solana to surpass its competitor BNB in market capitalization, claiming the third spot, excluding stablecoins.
The bullish run of SOL can be attributed to airdrops and the network’s ability to offer a more affordable and user-friendly solution compared to its rivals. However, the question remains whether these factors are enough to justify a rally towards $120 and beyond.
Experienced crypto investors often argue that Ethereum’s network rollup solutions provide sufficient scalability and cost reduction to keep investors on the network. Nevertheless, newcomers are likely to find Solana’s user experience much simpler. The same holds true for nonfungible token (NFT) launches and airdrops targeting a large number of addresses. Historical data shows that even layer-2 solutions face increased transaction costs or delays during periods of high demand.
Despite Solana’s recent network outage, SOL remained unaffected. On February 6th, the network experienced a 5-hour downtime, leading validators to coordinate a software update and restart from a specific slot. Exchanges also suspended 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 faced twelve similar outages.
On the positive side, Solana’s closely coordinated software development allows for quicker implementation of upgrades compared to Ethereum Virtual Machine (EVM) compatible networks. 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 discrepancy explains why the SOL token was unaffected by the recent network downtime.
To determine whether SOL’s rally above $110 is sustainable, one must examine Solana network activity, which is typically the primary driver of SOL demand. SOL price generally follows Bitcoin’s price and wider trends in the crypto market.
Initial analysis of DApps activity on the Solana network does not bode well, as data from the past seven days indicates 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 Solana’s activity is significantly lower than BNB Chain’s, given that SOL and BNB tokens hold a similar market capitalization, investors should consider if this is a cause for concern.
While the data does not suggest a sharp correction in SOL’s price, it raises questions about the sustainability of its path above $120 and its subsequent valuation of $52.5 billion in the medium to long term. SOL bulls rely on the network’s capacity, as evidenced by the 91.4 million transactions processed in the last week alone. This could be the determining factor if DApps activity picks up, regardless of whether it is driven by airdrops or other factors.
This article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making any decisions.