One surprising success story thus far in 2023 has been Solana (SOL 0.63%), which was the one crypto that was most impacted by the collapse of FTX (FTT 3.79%). In 2022, Solana fell by more than 94% and was one of the worst-performing cryptos of the year. But Solana is already up 143% this year and seems to be on an unstoppable run as it makes up for FTX-induced losses.
The question on the minds of many investors, of course, is just how much higher Solana can go. Before the FTX meltdown, Solana was trading near $34, so another 40% move upward from its current price of $24 certainly seems within the realm of possibility. Let's take a closer look at what needs to go right for this to happen.
Solana fundamentals
Right now, a lot of the price action in Solana seems to be based on investor psychology rather than the underlying fundamentals of the Solana blockchain. Quite simply, the market overreacted to the downside after the FTX meltdown, and now the market may be overreacting to the upside as investors realize the rumors of Solana's demise may have been greatly exaggerated.
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Fortunately, crypto research firm Messari has just released a new report called State of Solana Q4 2022, so it's possible to peek under the hood and see what's really happening with Solana. One of the key takeaways from the report is that the network health of the Solana blockchain is, if anything, improving. Average daily transaction volume was actually up over the quarter, refuting any suggestions that people were abandoning Solana in droves. Moreover, even with this additional transaction volume, transaction processing speed (as measured in transactions per second, or TPS) actually increased as well.
Things get a bit dicier, though, once you start looking at key market niches, such as non-fungible tokens (NFTs). This is an area where Solana was showing the most strength before the FTX meltdown, and it should be one area where investors continue to focus for signs of a Solana recovery. The bad news is that total new NFTs minted on the Solana blockchain declined by 65% on a quarter-over-quarter basis. Moreover, key metrics such as NFT secondary sales volume (down 19%) and the number of unique NFT buyers (down 49%) also fell significantly.
The good news, if you want to call it that, is that Solana managed to preserve its market position as the No. 2 player in the NFT market behind Ethereum (ETH 0.30%), despite all the chaos happening in the broader crypto market. As Messari details in its report, it's important to consider the relative position of Solana vis-a-vis its rivals at a time when the entire NFT market was showing signs of weakness. Solana's NFT secondary sales volume may have fallen, but it was still almost 10X that of its next nearest rival.
Where can Solana become the market leader?
For Solana to continue its current run, it needs to do more than just maintain the status quo; it needs to become the market leader in some niche of the crypto world. And it appears that Solana is trying to do exactly that. The crypto has a number of initiatives on tap for 2023 that could help propel it much higher than its current price of $24.
For example, Solana is taking new steps to boost overall network efficiency and throughput capacity. It is taking new steps to enforce the royalty rights of NFT creators, which could make the Solana blockchain much more attractive to new creators looking to mint NFTs. It is launching a new mobile initiative called Solana Mobile that will include a crypto phone and crypto-friendly mobile apps. It is getting deeper and deeper into areas such as Web3, gaming finance (GameFi), and decentralized physical infrastructure networks (DePIN). And finally, it is launching a new initiative that will make the Solana and Ethereum blockchains much more interoperable.
Is Solana a buy?
It will be interesting to see if these initiatives can help boost the numbers for Solana. I'm confident Solana can continue to improve its network resilience and throughput performance numbers. This is an area that investors started to question, given all the outages on the Solana blockchain last year, and I think Solana is addressing this head-on. I'm also confident that Solana can maintain its position as the No. 2 player in the NFT market. Simply showing strength in these two areas could be enough to get Solana back to the $34 level it was trading at before the FTX fiasco.
When you add in everything else -- such as the new GameFi and mobile initiatives -- that's what could really move the needle on Solana. For that reason, I'm bullish both short- and long-term on Solana.
