Bitcoinof (Cryptocurrency: BTC) On December 4, the price hit an all-time high of $103,332. The most recent halving was in April, which cuts mining rewards in half every four years; interest rate cuts; and President-elect Trump’s crypto-friendly policies.
As of this writing, the price of Bitcoin has fallen back to around $97,000, but is still up more than 120% in the past 12 months. With a market capitalization of $1.93 trillion, it is the world’s number one cryptocurrency and the seventh most valuable asset.
Image source: Getty Images.
Bitcoin remains a stable long-term play in the cryptocurrency market, but its upside potential may be less than that of its smaller coins. One of these tokens could be Solana (Cryptocurrency: SOL)which trades at around $190 and has a market cap of $90 billion?
Solana’s tokens are verified through a proof-of-stake (PoS) method that does not require digital mining of any token. This method is faster and more energy-efficient than the proof-of-work (PoW) mining mechanism used by Bitcoin.
PoW blockchain is only used to mine more coins. The PoS blockchain supports smart contracts and can be used to develop decentralized applications (dApps), games, non-fungible tokens (NFTs) and other crypto assets. PoS tokens can also be “staked” or locked on the blockchain for a period of time to earn interest-like rewards.
Bitcoin’s value is often defined by its scarcity. Its maximum supply is 21 million coins, of which nearly 20 million have been mined. The last Bitcoin is expected to be mined in 2140, making it somewhat comparable to gold or silver.
The value of Solana and other PoS tokens often depends on the speed of its blockchain and the growth of its developer ecosystem. Solana’s current token supply is close to 591 million and there is no maximum supply, but it plans to reduce its annual inflation rate (currently 4.83%) to 15% per “epoch year”, which is 450-630 days.
Solana is often overshadowed Ethereum(Cryptocurrency: ETH)the world’s second largest cryptocurrency and top PoS blockchain. Ethereum has its own native token, Ether, but there are many other smaller PoS tokens, including Shiba Inu, polygonand make itruns on its blockchain. It is easier to launch new tokens directly on the Ethereum blockchain than to build them from scratch, but these tokens are ultimately constrained by Ethereum’s speed limits.
Solana is a newer PoS blockchain that accelerates its transactions through its own Proof of History (PoH) mechanism. The upgrade has enabled Solana’s blockchain to process transactions about 46 times faster than Ethereum, but has so far only achieved less than 2% of its theoretical maximum speed.
Solana’s high-speed blockchain has attracted many developers and partners. It is used to develop meme coins, e.g. Bunker and Wireless IFwhich powers decentralized exchanges including Jupiter and Orca. It supports stablecoin trading visa, PayPalCircle, and integrate its Solana Pay payment protocol into Shoppingplatform.
Solana even launched its own Android smartphone for Web3 applications in 2023, the Saga Phone. letterGoogle Play Store.
But over the past two years, Solana has encountered network congestion issues, spam transactions and security failures. One of its largest investors was also the failed cryptocurrency exchange FTX, which rushed to liquidate its tokens at a discount to pay off creditors. All these challenges, coupled with rising interest rates, caused its price to fall below $10 in December 2022.
Solana’s price has soared nearly 19 times from its all-time low, but it could go even higher as its network issues are resolved, FTX sells off, and interest rates gradually fall. Several large cryptocurrency companies, including Grayscale, Bitwise and VanEck, have also recently applied for approval for Solana spot price ETFs.
The approval of these ETFs could stabilize Solana’s price while attracting more retail and institutional investors. They may also mark a shift away from smaller altcoins and towards “blue chip” cryptocurrencies such as Bitcoin and Ethereum.
Solana is an interesting alternative to Ethereum, but it is not yet a viable alternative to Bitcoin. Solana could be a good investment if you believe it can continue to increase speed, expand its ecosystem, and gain new ETF approvals. However, it is still an inflationary token and is more difficult to value than Bitcoin.
Investing in both Bitcoin and Solana may be a smart move, but investors should be aware of their differences. Bitcoin can be viewed as a digital alternative to gold, but Solana’s value will be defined by its transaction speed and developer appeal.
Before buying Solana stock, consider the following factors:
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Suzanne Frey is a senior executive at Alphabet and a board member of The Motley Fool. Leo Sun has no position in any of the stocks mentioned. The Motley Fool holds and recommends Alphabet, Bitcoin, Ethereum, PayPal, Render Token, Shopify, Solana and Visa. The Motley Fool recommends the following options: long January 2027 $42.50 PayPal calls and short December 2024 $70 PayPal calls. The Motley Fool has a disclosure policy.
Should you forget Bitcoin and buy Solana? Originally published by The Motley Fool
