SOL

Now Up 520%, Is Solana Still a Buy?

The recent market performance of Solana (CRYPTO: SOL) is literally off the charts. Solana is now up 160% over the past 30 days, and more than 520% for the year. By way of comparison, Bitcoin (CRYPTO: BTC) is up 120% for the year. Even the biggest Solana bulls have to wonder what's going on right now.

In mid-November, Solana's price moved about $50 for the first time in nearly 18 months and now seems to be on a rapid trajectory to regain its all-time high of $260 from two years ago. Some analysts are even projecting that Solana could increase in value to $3,200 by the end of the decade.

So just how much higher can Solana go? There are two key factors to consider.

1. The Sam Bankman-Fried factor

From my perspective, one of the biggest factors responsible for Solana's recent rise has been the conclusion of the criminal trial of Sam Bankman-Fried, the former chief executive officer of failed cryptocurrency exchange FTX. Bankman-Fried also happened to be one of the original investors in Solana, and both FTX and its affiliates (including hedge fund Alameda Research) held large positions in Solana.

Heading into the trial, there were concerns that the criminal trial was going to turn up something new about Solana that would make investors panic. At the same time, there was uncertainty about how many Solana tokens FTX and its affiliates still held, and whether these would be part of a future fire sale related to FTX bankruptcy proceedings.

The moment of truth came when Bankman-Fried finally took the stand and testified in his own defense on Oct. 27. As can be seen in the chart, the conclusion of the trial in early November coincided with a new, much steeper upward trajectory for Solana.

So, long story short, a huge overhanging cloud seems to have been removed from Solana, and the outlook for this crypto suddenly looks much improved.

2. The institutional investor factor

The second big factor in Solana's rise has been the sudden influx of institutional investor money. In search of cryptocurrencies other than Bitcoin where they can invest, they have seemingly landed on Solana as the new altcoin of choice. This is the unofficial title formerly held by Ethereum (CRYPTO: ETH), which remains the second-most valuable cryptocurrency, with a whopping $235 billion market capitalization.

Investor with laptop in sunny home.

Image source: Getty Images.

But if you look at institutional investor inflows and outflows for various cryptos, it's obvious that institutional investors are moving out of Ethereum and into Solana. According to CoinShares, which tracks these inflows and outflows, Solana saw inflows in 28 of the first 32 weeks of the year. At the same time, Ethereum has seen outflows. So, a big influx of new institutional investor money seems to be pushing up the price of Solana.

Solana at $3,200?

One of the more aggressive price predictions that I've seen for Solana recently is a $3,200 price target put out by investment firm VanEck at the end of October. Keep in mind that the all-time high for Solana is $260, so this bull case price target is many times higher than the highest price Solana ever achieved in its brief history. This ultra-bullish price forecast is based on a modified valuation model used for companies, and implies a market cap of roughly $2 trillion for Solana by 2030.

Generally speaking, the more activity that takes place on a blockchain, the more valuable it should be. Thus, the more that Solana can penetrate key market niches, the more valuable it will become. The $3,200 price target, for example, assumes that Solana will eventually earn a 30% market share in key categories such as "finance, banking, payments" and "metaverse, social, and gaming."

Should you buy Solana?

It may sound hard to believe, but even after turning in a head-spinning 520% performance this year, Solana may still be undervalued. All the factors seem to be lining up for Solana, especially the arrival of deep-pocketed institutional investors. As long as these investors keep moving their money into Solana, the price of Solana should continue to go up.

As bullish as I am on Solana, though, I'm not quite ready to sign off on the $3,200 price target. Although Solana has a number of exciting projects in the works, including a new mobile crypto strategy and the launch of a major new payment project, I still need to see more evidence that Solana is ready to eclipse Ethereum as the preeminent Layer 1 blockchain. Until then, Solana's all-time high of $260 seems like a much more reasonable price target.

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Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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