The price of Solana has increased today, supported by a notable recovery in the wider cryptocurrency market. SOL’s bounce back coincides with Bitcoin crossing the $100,000 mark again, as various technical and on-chain indicators suggest potential further gains for the layer-1 token.
According to data from Cointelegraph Markets Pro and TradingView, SOL is currently priced at $230, having risen over 6% in the past 24 hours and recovering all losses suffered on December 11.
In recent weeks, the smart contract token has demonstrated strong performance, climbing more than 45% since November 5, and it has gained 121% year-to-date. Its market capitalization stands at $109.25 billion, making it the fifth-largest cryptocurrency by market value.
Let’s examine the factors contributing to Solana’s price increase today.
The integration of ZK-rollups in Solana supports SOL’s upward movement
The Solana blockchain is progressing with the implementation of ZK-rollups, which improve privacy and on-chain computations through innovative initiatives like ArciumHQ and Bonsol.
The adoption of ZK-rollups signifies a significant advancement for Solana, with key projects such as ArciumHQ spearheading the effort to provide a trustless and efficient framework for encrypted computations on the blockchain.
Furthermore, this development enhances privacy and security, with projects like DarklakeFi and PrivateLP focusing on creating confidential swap-based automated market makers and a market-governed anonymity protocol, respectively.
Moreover, teams like RiscZero and Succinct Labs implementing ZK-based scaling and ZK Virtual Machines (ZKVMs) enable arbitrary on-chain computations that aren’t constrained by Solana’s computational capabilities.
These advancements are crucial in preserving Solana’s competitive edge as a blockchain that can accommodate high-throughput requirements while ensuring privacy and security. This fosters user confidence in the network and boosts demand for SOL, which positively influences its price.
Growing network activity supports the rise in SOL’s price
The uptick in SOL’s price on December 11 is attributed to an increase in on-chain activity as more users participate in the network, thereby contributing to the growing momentum.
Data from DefiLlama indicates that the total value locked (TVL) in the Solana network surged from $5.6 billion on November 5 to an all-time high of $9.5 billion on December 7. This 70% increase points to heightened interaction from users and developers with the network.
Additional data from Blockworks Research shows that SOL’s price rise on December 11 followed a significant boost in the network’s economic activity. The accompanying chart reveals that Solana’s monthly real economic value—accounting for all revenue sources, including base and priority fees—rose from $158 million in October to an all-time peak on October 24, now resting at $409 million in November.
A drop in TVL and real economic value for Solana signifies its waning appeal to developers compared to competitors, which decreases the demand for the native SOL token.
Moving averages are favorable for Solana
To conclude a prolonged two-week correction, SOL found support in a significant demand zone identified on its downside. This zone is characterized by the $200 level and the 50-day exponential moving average (EMA), currently at $213.
Solana tested this support zone on November 11 and November 16 before surging to new all-time highs above $264 on November 22.
This indicates that each time the price revisits this zone, more buyers accumulate there, increasing demand-side pressure.
However, while rebounding from this demand zone, it also faced resistance in the range of $230 to $242. This suggests that overcoming this key level is essential for bulls to achieve a sustained recovery.
Traders’ expectations of a SOL ETF approval and a $750 price target set by Bitwise are bolstering positive sentiment among traders regarding Solana.
SOL has surged 13% from its recent bottom of $203.30 on December 10, reclaiming the $230 mark. This recent price behavior paves the way for additional upside, as suggested by both derivatives and on-chain metrics. Market participants are now questioning if the correction has concluded and what potential catalysts could drive the price to $260 and higher.
SOL was among the few tokens that achieved a new all-time high in 2024, hitting $264.50 on November 22. However, this momentum could not be maintained, with SOL lagging as the overall altcoin market cap increased by 18% since November 22, while SOL’s price declined by 12%.
More concerning is the 63% drop in on-chain volumes on the Solana network during the week ending December 9, which raises doubts about the sustainability of the recent price increase. Nonetheless, it’s worth noting that this trend was not unique to Solana; Ethereum, BNB Chain, and Avalanche also experienced comparable declines.
The MEV strategy of ‘sandwiching’ is linked to SOL’s underperformance
While the precise reasons for SOL’s underperformance in comparison to the broader altcoin market are still uncertain, some traders, including WazzCrypto, argue that ‘maximal extractable value’ (MEV) might be the major reason behind the recent decline.
A post by WazzCrypto on X indicates that a significant portion of value extraction on Solana results from a strategy called ‘sandwiching,’ which is a form of maximal extractable value (MEV) where traders execute orders both before and after a targeted transaction to profit from the resulting price changes. The discussion points out one occurrence where a single wallet reportedly accounted for 50% of the trading volume of the MOTHER token, while most traders faced losses during similar token launches.
From the perspective of derivatives, the cryptocurrency market crash on December 9 proved advantageous for SOL as excessive leverage was eliminated from the market. The open interest in SOL futures decreased by 12%, now sitting at 22.8 million SOL, and the cost for bullish leverage fell below 1% for the first time in more than a month.
After reaching a high of 6% per month on December 5—reflecting strong optimism—the funding rate experienced a sharp decline on December 9, following the forced liquidation of leveraged long positions. The current market environment appears to be more favorable, particularly given that the total SOL futures open interest has now increased to $5.2 billion.
Investor sentiment surrounding SOL was further enhanced by Bitwise, a cryptocurrency exchange-traded fund (ETF) provider, setting a target price of $750. The firm attributed this to increased institutional investing, a better regulatory landscape, and the emergence of “serious” projects on the network, which could bolster its position in the memecoin market.
Moreover, traders are growing increasingly hopeful that approval for a Solana ETF in the United States is on the horizon, especially in light of SEC Chair Gary Gensler’s resignation. Taking these factors into account, SOL investors have plenty of reasons for optimism, with a positive outlook for early 2025 and strong derivatives markets.
What Is Solana (SOL)?
Solana represents a blockchain platform aimed at hosting decentralized, scalable applications. Established in 2017, it is an open-source initiative currently managed by the Solana Foundation, located in Geneva, while the blockchain was developed by Solana Labs, based in San Francisco.
In terms of transaction processing speed, Solana significantly outpaces its competitors like Ethereum and has much lower transaction fees. The cryptocurrency associated with the Solana blockchain—also called Solana (SOL)—surged nearly 12,000% in 2021 and, at one point, reached a market capitalization exceeding $75 billion, making it one of the largest cryptocurrencies by that metric at the time. As of 2024, SOL continued to rank among the largest cryptocurrencies by market capitalization.
History of Solana
Anatoly Yakovenko, a co-founder of Solana, previously worked in distributed systems design for top tech companies like Qualcomm Incorporated (QCOM). His experience made him realize that having a reliable clock aids in network synchronization, which results in a network that is significantly faster, limited only by its bandwidth.
Yakovenko concluded that incorporating proof-of-history would greatly accelerate the blockchain in comparison to those without timestamps, such as Bitcoin and Ethereum. These latter systems struggled to exceed 15 transactions per second (TPS) worldwide, a small fraction of the throughput managed by centralized payment systems like Visa (V), which reportedly handle peaks of up to 65,000 TPS.
Yakavenko’s proof-of-history overcomes this limitation by enabling each node in the network to depend on the recorded passage of time.
Proof-of-History Concept
In November 2017, Yakovenko released a white paper outlining the proof-of-history (PoH) concept. PoH enables the blockchain to achieve consensus by confirming the passage of time between occurrences and is utilized to timestamp events within the ledger.
In the white paper, Yakovenko pointed out that existing blockchains at the time did not utilize time, as every node in the network relied on its own clock without awareness of other participants’ clocks. The absence of a trustworthy time reference (i.e., a standardized clock) meant that when a timestamp was used to accept or reject a message, there was no assurance that all other network participants would arrive at the same conclusion.
Solana’s Technology
The design of Solana employs algorithms to eliminate performance hurdles posed by blockchain software. This approach renders it scalable, secure, and decentralized. There is speculation that its architecture could potentially allow for 710,000 TPS on a typical gigabit network and as much as 28.4 million TPS on a 40-gigabit network.
Solana’s blockchain utilizes both a proof-of-history (PoH) and proof-of-stake (PoS) consensus mechanism. PoS enables validators (those responsible for validating transactions added to the blockchain ledger) to confirm transactions based on the number of coins or tokens they possess; PoH allows these transactions to be timestamped and verified rapidly.
Solana vs. Ethereum
The swift growth of Solana’s ecosystem and its adaptability have led to comparisons with Ethereum, which is the foremost blockchain for decentralized applications (dApps):
Smart contracts: Both Solana and Ethereum offer smart contract functionality, essential for operating advanced applications like decentralized finance (DeFi) and non-fungible tokens (NFTs).
Consensus: Both Solana and Ethereum utilize a proof-of-stake (PoS) consensus model, where validators put up their cryptocurrency as collateral to earn rewards for supporting the blockchain. Solana enhances PoS by also incorporating proof-of-history (PoH).
Speed: A significant part of the excitement around Solana in 2021 stemmed from its clear edge over Ethereum regarding transaction processing efficiency and costs. Solana can handle over 2,400 transactions per second (as of Sept. 18, 2024), with an average transaction cost of $0.00026. Conversely, Ethereum manages fewer than 15 TPS transactions and has an average fee of approximately $0.30.
Etherscan. “The Ethereum Blockchain Explorer.”
Ethereum Upgrades
Ethereum benefits from its first mover advantage and, with its vast ecosystem, is second only to Bitcoin in market capitalization.
The 2022 upgrade of Ethereum, which integrated its Beacon Chain and Mainnet Chain, established a foundation for its blockchain to achieve greater scalability, security, and sustainability. A forthcoming upgrade will implement danksharding, which will significantly reduce transaction durations and alleviate network congestion. It remains to be seen how Solana will compare against these enhancements.
Reasons to Consider Using Solana
Data speaks for itself; on January 31, 2024, Solana achieved an all-time high of around 875,940 daily active users. The following factors contribute to the popularity of the Solana blockchain:
Scalability: The design of Solana is purposely intended for scalability, allowing it to handle a large volume of users and transactions while maintaining a fast operational speed.
Speed: Solana is recognized as one of the fastest blockchains, capable of processing around 65,000 transactions per second.
Energy Efficiency: Through its innovative Proof of History and delegated Proof of Stake consensus mechanism, Solana minimizes energy consumption when compared to other blockchain platforms, focusing on energy conservation.
Low Transaction Fees: Solana is notable for its low transaction fee structure in comparison to older blockchain networks.
Active Community: Supported by a strong and growing community of developers, investors, and users, Solana provides extensive resources and assistance, making it an appealing choice for businesses.
Looking ahead, I anticipate that the Solana blockchain will become seamlessly incorporated into our daily lives for these reasons.
Given these fundamentals, I expect several areas where Solana will excel in the future, including:
- Tokenization of Real-World Assets
- Artificial Intelligence
- Decentralized Privacy and Identity Network (DePIN)
- DeFi, GameFi, and NFTs
Challenges Facing the Solana Network
1. Security issues and network stability: The network has gone through multiple outages over the last two years, with the most recent occurring on February 6, 2024. It’s interesting to note that despite this outage, many expected a significant drop in Solana’s price, yet it only decreased by 4% and recovered in the days following the incident. This demonstrates the resilience of the Solana community.
Jump Crypto is currently developing a solution called Firedancer to address these outages. By reducing vulnerabilities to flaws, coding exploits, and attacks, Firedancer could potentially remedy the issue.
Solana has also faced security breaches, with the latest hack happening in early August 2022, leading to over 8,000 compromised wallets and approximately $5 million stolen.
2. Centralization of the network: The Solana network is often viewed as being quite centralized for several reasons:
- Low validator count: Presently, there are roughly 3,400 validators on the Solana blockchain, which corresponds to a Nakamoto coefficient of about 31, a relatively small figure compared to Ethereum and Bitcoin. This limited number is due to the high expenses associated with operating a Solana node.
- Significant VC ownership: Solana could be described as a “VC baby.” Its funding came from a select few venture capital firms that received SOL tokens as compensation. Investors have expressed concerns that VCs with substantial SOL holdings could easily influence the market. The fallout from the FTX crash in late 2022 highlighted these fears.
Noteworthy Achievements on the Solana Network
Solana’s rapid processing capabilities and low fees have made it the preferred choice for many crypto enthusiasts. Developers appreciate the robust infrastructure at their disposal, and we have witnessed ongoing expansion within the Sol ecosystem. Here are some significant milestones from recent years, presented in no specific order:
1. Solana Pay’s integration with Shopify: This groundbreaking development allows merchants to receive payments in USDC via the Solana network, eliminating the requirement for intermediaries and their associated costs.
2. Solana’s remarkable recovery: Following the FTX crisis in November 2022, Solana’s price plummeted to as low as $9. However, the asset rebounded significantly in 2023, recovering nearly 1,000% from its 2022 lows. By December 2023, Solana’s price soared to approximately $117, resulting in tremendous gains for those investors who capitalized on the dip.
3. Visa’s partnership with Solana: I consider this a dream come true for Anatoly. In September 2023, it was announced that Visa would expand its settlement capabilities to include Solana for stablecoin transactions. Anatoly designed Solana with the ambition of surpassing centralized payment systems like Visa (wink).
4. Launch of the Solana mobile phone “Saga”: Solana unveiled its mobile phone in April 2023, and by December of that year, it had sold out globally. A second edition is expected to launch by 2025, with over 60,000 preorders already placed.
5. Introduction of the blockchain node engine for Solana: In October 2023, Google Cloud integrated Solana into its BigQuery data analytics service, expanding support to its 20th blockchain network and enabling access to Solana-related data. This allows developers, businesses, and users to query Solana data, including transactions and NFT minting, utilizing Google’s BigQuery and Bigtable services for analytics and archival data access.
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