The Rise of Solana: Is it the Next Bitcoin or an Independent Force?

The Rise of Solana: Is it the Next Bitcoin or an Independent Force?

The price of Solana’s SOL (SOL) experienced a significant gain between Sept. 28 and Oct. 6. However, it begs the question: is this rally simply riding on the coattails of Bitcoin (BTC), or is it being driven by other factors? Before this price breakout, SOL faced a turbulent period due to the approval of the sale of $1.3 billion in SOL from the bankrupt exchange FTX by a U.S. court. In order to prevent the liquidation of FTX assets from burdening the crypto market, the bankruptcy court mandated that the sale occur through an investment adviser in weekly batches following predefined rules.

Following the initial impact of the FTX sale, which drove SOL’s price down to a two-month low of $17.34 on Sept. 11, there was a glimmer of hope as SOL managed to reestablish the $20 support on Sept. 29. This renewed confidence coincided with a successful upgrade to version 1.16, resulting in a 16% boost for SOL over the next seven days. Furthermore, the rally of SOL was also supported by the increase in the usage of decentralized applications (DApps) and the growth of nonfungible token (NFT) volumes on the Solana network.

SOL’s price is currently attempting to establish a $23 support level and solidify its position as the fifth-largest cryptocurrency (excluding stablecoins) by market capitalization, surpassing ADA’s (ADA) $9.22 billion. When evaluating networks that focus on DApp execution, the number of active users should be a primary consideration. Therefore, quantifying the addresses engaged with smart contracts, which represents the number of users, is a crucial metric to analyze.

Notably, the increase in activity across all sectors on the Solana network, including NFT marketplaces, decentralized finance, collectibles, social, and gaming, has been consistent. In fact, Solana’s active addresses engaging with DApps exceeded Ethereum’s during the same period, with Ethereum’s capped at 55,230. Solana has gained traction in the NFT market due to its cost-efficient and scalable solution that compresses and stores data off-chain. This allows for mass production at lower minting fees, enabling creators to reach broader audiences.

The recent 20% price gains of SOL may be attributed to the network’s upgrade to version 1.16 on Sept. 28. This update introduced a “gate system” to ensure the gradual activation of new features, maintaining network stability and avoiding issues caused by abrupt changes. Additionally, the update included “confidential transfers” that use zero-knowledge proofs to encrypt transaction details, enhancing user privacy. It also brought improvements in RAM usage for validators, resizable data accounts, and a mechanism to identify corrupted data. Overall, this update signifies a significant milestone in the development of the Solana blockchain, improving efficiency, privacy, and security.

Despite Solana’s progress in terms of privacy, scaling, and security, it faces stiff competition from other blockchain networks. Ethereum layer-2 solutions, for instance, have gained more traction in terms of total value locked (TVL) and activity. Arbitrum holds $1.73 billion in TVL, and Optimism holds another $637 million, according to DefiLlama, both surpassing Solana’s $326 million. While Solana continues to make strides, external factors come into play alongside the FTX bankruptcy drama, making the $23 resistance level more difficult to breach than initially anticipated. Ultimately, investors predominantly focus on the Ethereum ecosystem, given its leadership in terms of developers and consolidated decentralized applications.

Solana’s rise in price is not solely reliant on Bitcoin’s movements. The network’s resilience, successful upgrade, active user growth, and progress in the NFT market contribute significantly to SOL’s recent rally. However, Solana still faces challenges in competing with other blockchain networks and breaking through key resistance levels. As the crypto market continues to evolve, the future of Solana remains uncertain, but it has certainly made its mark as a unique force in the ever-expanding cryptocurrency landscape.

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