Crypto Crash: Why I’m As Bullish On This Beaten Crypto As I Was Before The FTX Fallout

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The crypto market is still as volatile as a box of firecrackers. It’s not a secret. Global blockchain ledgers of coins and digital tokens are still new, especially in the field of investment.

I am convinced that serious crypto projects have a bright future ahead of them, as blockchain technology disrupts banking systems, payment services, insurance, personal records, and more. However, even the most robust crypto names go through intense boom and bust cycles driven by good news and bad news.

One of the biggest crypto plunges to date occurred last November when crypto trading exchange FTX suffered a financial meltdown and filed for bankruptcy protection. The FTX scandal slashed the total market value of the cryptocurrency market by 22% in two short days, according to data from CoinMarketCap.

Other than FTX’s own utility coin, no cryptocurrency suffered this crash harder than Solana (SOL -9.37%). The disgraced crypto exchange had many ties to Solana and owned a large number of tokens, so traders rushed for the exits. The price of the decentralized finance (DeFi) token rose from $32 to $8.40 as the FTX crisis progressed. It made a comeback in 2023, reaching $24.40 this year.

I’m as bullish on Solana as I was before the FTX crash. However, that’s not exactly a ringing endorsement. Some of my colleagues are more optimistic. Check out Dominic Basulto’s preview of Solana 2023 for a rosier analysis, or read on to see why I want to like Solana but can’t quite call it a buy just yet.

What’s wrong?

In a perfect world, Solana would be a fantastic alternative to smart contract platforms like Ethereum (ETH -3.75%) and Cardano. In fact, Solana is a better platform for developing decentralized applications than Ethereum in several ways. It was an energy-intensive Proof-of-Stake system before Ethereum made the leap last September. Even after the Ethereum “merger”, Solana still executes smart contracts faster and cheaper.

What’s not to like, right?

Well, you might remember that classic scene from Fried Green Tomatoes at the Whistle Stop Cafe, where some teenagers rob a parking space that Kathy Bates wanted, only to see their red Beetle run over by the tank-shaped car of Kathy.

“I’m older and more confident,” she says impassively as she pulls out of the supermarket parking lot.

Being “younger and faster” couldn’t compete with a bigger and stronger structure. You can often say the same about emerging cryptocurrencies. Kathy Bates stars as Ethereum in Solana’s growth story.

This project was launched in 2020, five years after the first Ethereum token was mined, and its ecosystem of applications and developers cannot compete with the dominant Ethereum alternative. Additionally, Solana could have designed its smart contracts to be compatible with Ethereum’s ERC-20 standard, making it easier to move projects between systems. They didn’t, which feels like a missed opportunity.

The FTX debacle has only made that separation wider and clearer. Solana’s developer community and daily transaction counts have cooled since November, extending Ethereum’s advantage in real-world utility.

Image source: Getty Images.

Where does that leave Solana today?

Here’s the deal. I have always respected Solana’s innovative technology and the challenge it presents to the Ethereums and Cardanos of the crypto world. Solana joined my personal crypto wallet in the summer of 2021, before the current crypto winter set in. As token prices dipped in 2022, I had planned to make a mid-dollar cost to work my way into a larger Solana position at lower prices, but I never slapped that “buy”. button again.

Now, at the start of 2023, Solana is trading 92% below its all-time highs amid declining developer interest. The cryptocurrency’s close ties to FTX undermined investor and developer confidence and interest on November’s doomsday, and it will take time to rebuild everything.

I expected Solana to be a strong long-term growth story before FTX crashed, based on a great technical platform and a vibrant community of app developers. Now, I see slower growth and more risk in the years to come, since the worst-case scenario involves the remaining Solana applications folding back and moving to another blockchain ecosystem.

I’m still slightly optimistic but not impressed enough to buy more tokens. It’s too easy to double down on more obvious options. To invest in the Web3 vision, where Solana remains a respectable player, I prefer to buy more Polkadottokens instead. For broader play on DeFi and blockchain-based applications, Ethereum looks stronger than ever.

Long story short, Solana was a “buy” with a huge asterisk before FTX crashed. That asterisk now points to a different footnote, changing high prices and overheated expectations for a story of dramatic turnaround. I’m still a moderate Solana bull with too many question marks to inspire another buy today.

Anders Bylund holds positions at Cardano, Ethereum, Polkadot, and Solana. The Motley Fool holds posts and recommends Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.

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