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Can Solana (CRYPTO:SOL) Repeat Its 11,178% Gain from 2021?

·4 min read
crypto, chart, stocks
crypto, chart, stocks

Written by Christopher Liew, CFA at The Motley Fool Canada

A cryptocurrency, not Bitcoin, delivered an out-of-this-world return in 2021. Had you invested US$1,000 in Solana (CRYPTO:SOL) on year-end 2020, your money would have grown to US$112,781.46 by December 31, 2021. From US$1.51, SOL soared 11,178.1% to US$170.30 in one year.

As of February 9, 2022, SOL trades at US$114.02, although the price is 56% lower than its all-time high of US$258.93 on November 6, 2021. Many crypto followers pick Solana as the best digital currency investment in 2022.

Based on forecasts by several analysts, the price growth in 2022 could in enormous but not as high as last year. The average price target is US$217 with some ‘bold’ forecasts between US$900 and US$1,072.

Eighth-largest cryptocurrency

CoinDesk reports that Solana is the eighth-largest cryptocurrency, behind Ripple and Cardano. The market cap stands at US$35.63 billion, as of this writing. Solana and Cardano are rivals with the intention to overtake Ethereum, the second-largest cryptocurrency.

Ethereum rules the non-fungible token (NFT) space by sales volume but Solana is fast gaining ground. Metaplex, Solana’s NFT marketplace, process US$32 million worth of transactions per week. It’s still a work in progress, although the founders have a road map into the future. Moreover, Solana has an outstanding advantage over Ethereum and probably Bitcoin too.

Unique mechanisms

Solana is the proof-of-history (PoH) pioneer. It was the first blockchain project that used the PoH as its consensus mechanism. It also uses a proof-of-stake (PoS) consensus algorithm for network security.

Both mechanisms are unique in that they help process transactions quickly. Its native token, SOL, powers the platform that can process 50,000 transactions per minute. Besides the transaction processing speed, Solana boasts scalability and low transaction costs.

With the PoH and PoS mechanisms, Solana developers want to help power smart contracts, decentralized apps (dApps), and decentralized finance (DeFi) uses. A published report by Crowd Wisdom reveals that the Solana network has more than 500 dApps and multiple DeFi projects built on Solana. The number of minted NFTs has reached 5.7 million already.

Investment thesis

If the primary basis for choosing a crypto investment is performance, Solana stands out. It has outperformed Cardano and Ethereum last year. Other compelling reasons to invest includes an outstanding ecosystem focused on Solana applications. Blockchain’s speed is perhaps the biggest advantage, not to mention its lower gas fee compared to Ethereum.

A Bank of America research note said Solana could become the “Visa of the digital asset ecosystem.” It could be true since it has the fastest blockchain in the world supported by the fastest-growing crypto ecosystem. According to Solana Labs’ CEO Anatoly Yakovenko, the target is to reach one million developers on its platform.

The multiple utilities of Solana’s platform are competitive advantages. It can create NFTs, host trading platforms, pay for goods and services, and perform smart contracts. Solana’s network can process 13 transactions per second, which is more than double the number of transactions that is possible on the Bitcoin network.

Risky investments

Cryptocurrencies remain risky investments, especially for regular investors. The industry is nascent and still evolving. Thus, price predictions are unreliable, as evidenced by the steep climbs and sudden big drops. Be ready to lose money on Solana because the crypto displays the same behaviour.

The post Can Solana (CRYPTO:SOL) Repeat Its 11,178% Gain from 2021? appeared first on The Motley Fool Canada.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin and Ethereum.

2022

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