Solana: whether short or long term, be careful

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With crypto under pressure in recent days, you might be thinking now is the perfect time to “buy the dive” with Solana (SOL-USD). But you might want to think twice before buying it today. Whether as a short-term trade or as a long-term investment. Why? External factors could continue to push it down for the time being. Over a longer period of time, coin-specific factors could limit its ability to reach all-time highs again. Much less, making its way to new all-time highs. Put it all together, and it’s hard to say it’s a screaming buy right now. First, let’s take a look at what might affect its short-term performance.

Over the next few months, the increasingly hawkish stance of the Federal Reserve could put more pressure on cryptocurrencies. An asset that trades more in line with stocks than ever before, cryptos, are likely to decline, as the cycle of “risky” assets resumes. Established coins, like Bitcoin (BTC-USD) and Ethereum (ETH-USD), may experience another moderate decline. More volatile altcoins, like SOL-USD, could experience outsized declines compared to BTC-USD and ETH-USD. It has already seen a bigger decline than its peers over the past week. Both Bitcoin and Ethereum are down around 14% during this time.

Meanwhile, Solana is down more than 22.5%. As the issue causing its downfall (monetary tightening) is not about to subside anytime soon, another big boost in the coming weeks/months doesn’t seem likely. Unless, of course, we see a repeat of the “dead cat bounce” seen in mid-March. After breaking down the short-term predictions, let’s take a look at the long-term predictions. In short, a complete return may prove difficult. This is due to its diminishing status as an “Ethereum killer”. Largely, due to the network issues its blockchain has been experiencing in recent months.

If these problems occur again in the future? This could further diminish its reputation as the superior platform to Ethereum, holder of the decentralized finance (DeFi) market, as well as another top “Ethereum killer”. gimbal (ADA-USD), deploys its own scalability upgrade (Hydra), Solana might lose its main advantage (faster speed, higher scalability). This could limit future adoption of its platform by developers. In turn, limiting its original coin’s ability to appreciate. I will admit, however, that there is another way to look at increased adoption.

There’s something else that could help the price of its coins rise in the long run: its move into the digital payments space. In a recent article, my InvestorPlace his colleague Mark Hake argued that this could be a big catalyst for this piece. But even if you’re interested in Solana for its digital payments catalyst, there’s no pressing need to rush. It will take time for this catalyst to happen (eventually). In the meantime, external factors could continue to push it down to much lower prices.

At the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

InvestorPlace.com contributor Thomas Niel has been writing individual stock analysis for online publications since 2016.

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