Should you overlook Bitcoin and buy Solana instead?
Bitcoin’s (CRYPTO: BTC) worth hit an all-period high of $103,332 on Dec. 4. Four main catalysts drove it to that point: the approvals of its first spot worth ETFs in January; its latest halving in April, which cuts its rewards for mining in half every four years; earnings rate cuts; and President-elect Trump’s crypto-amiable policies.
Bitcoin’s worth has pulled back as of this writing, but it remains up more than 120% over the history 12 months. With a trade capitalization of $1.93 trillion, it’s the globe’s top cryptocurrency and seventh most valuable property.
Bitcoin is still a solid long-term play on the cryptocurrency trade, but it might have less upside potential than its smaller coins. Could one of those tokens be Solana (CRYPTO: SOL), which trades at about $190 with a trade cap of $90 billion?
What sets Solana apart from Bitcoin?
Solana’s tokens are validated with the proof of stake (PoS) way, which doesn’t require any tokens to be digitally mined. That way is faster and more vigor efficient than the proof of work (PoW) mining mechanism used by Bitcoin.
PoW blockchains are only used for mining more tokens. PoS blockchains back intelligent contracts, which can be used to develop decentralized apps (dApps), games, non-fungible tokens (NFTs) and other crypto assets. PoS tokens can also be “staked,” or locked up, on the blockchain for a period of period to earn earnings-like rewards.
Bitcoin’s worth is often defined by its scarcity. It has a maximum supply of 21 million tokens, and nearly 20 million of them have already been mined. The last Bitcoin is expected to be mined in 2140, which makes it somewhat comparable to gold or silver.
Solana and other PoS tokens are usually valued by the speed of their blockchains and the growth of their developer ecosystems. Solana has a current supply of nearly 591 million tokens and no maximum supply, but it’s set to reduce its annual expense boost rate, currently at 4.83%, by 15% every “epoch year,” which amounts to 450-630 days.
What sets Solana apart from other PoS tokens?
Solana is often overshadowed by Ethereum (CRYPTO: ETH), the globe’s second largest cryptocurrency and top PoS blockchain. Ethereum has its own native token, Ether, but many other smaller PoS tokens, including Shiba Inu, Polygon and Render, run on its blockchain. It’s easier to directly launch a recent token on Ethereum’s blockchain than to construct one from scratch, but these tokens are ultimately constrained by Ethereum’s speed limitations.
Solana is a newer PoS blockchain that accelerates its transactions with its own proof-of-history (PoH) mechanism. That upgrade already enables Solana’s blockchain to procedure transactions roughly 46 times faster than Ethereum, but it’s only achieved less than 2% of its theoretical max speed so far.
Solana’s high-speed blockchain has attracted a lot of developers and partners. It’s been used to develop meme coins such as BONK and WIF, and it powers decentralized exchanges including Jupiter and Orca. It supports stablecoin transactions for Visa, PayPal and Circle, and it’s integrated its Solana Pay settlement protocol into Shopify’s platform.
Solana even launched its own Android smartphone for Web3 apps, the Saga Phone, in 2023. It’s still a niche gadget, but it sports its own dApps Store as an alternative to Alphabet’s Google Play Store.
But over the history two years, Solana dealt with network congestion problems, spam transactions and safety failures. One of its top investors was also the failed crypto swap FTX, which hastily liquidated its tokens at a discount to pay off its creditors. All of those challenges, along with rising earnings rates, drove its worth below $10 in December 2022.
What’s next for Solana?
Solana’s worth has already soared nearly 19 times from its all-period low, but it could head even higher as it resolves its network issues, it laps FTX’s large sale, and earnings rates gradually decline. Several large crypto firms, including Grayscale, Bitwise and VanEck, have also recently filed for the approvals of Solana spot worth ETFs.
Those ETF approvals could stabilize Solana’s worth while bringing in more retail and institutional investors. They would also probably mark its shift from a smaller altcoin to a “stable investment” cryptocurrency such as Bitcoin and Ether.
But is Solana a viable alternative to Bitcoin?
Solana is an fascinating alternative to Ether, but it’s not a viable replacement for Bitcoin yet. Solana might be a excellent financing distribution if you depend it can keep increasing its speed, expanding its ecosystem, and gaining recent ETF approvals. However, it’s still an inflationary token that’s much harder to worth than Bitcoin.
It could be intelligent to invest in both Bitcoin and Solana, but investors should be aware of their differences. Bitcoin can be considered a digital alternative to gold, but Solana’s worth will be defined by its swap speeds and developer appeal.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Bitcoin, Ethereum, PayPal, Render Token, Shopify, Solana and Visa. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content associate offering financial information, analysis and commentary designed to assist people receive control of their financial lives. Its content is produced independently of USA TODAY.
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