How sustainable is the solana price? A critical point of view
Solana (SOL) is one of the great protagonists of the cryptocurrency market due to the notable growth it had in 2024.
So far this year, the price of the native currency of the Solana network rose by more than 180%. Thanks to this performance, the asset scored a new all-time high (ATH) of $263 on November 23.
Brad Thomas, cryptocurrency market analyst, explains that this rebound in prices and assets on the network is driven by the rise of memecoinsassets that are used for financial speculation and do not solve any problem.
According to data from CoinGeckoSolana memecoins have a market capitalization of $15 billion, meaning they are more valuable than chainlink (LINK) or avalanche (AVAX).
One of the big drivers of activity in that ecosystem was pump.fun, the meme cryptocurrency creation platform. Since his launch, A total of 4.841 million tokens were created, generating more than 1.7 million SOL, the equivalent of 353 million dollars.
Despite the bullish sentiment around SOL, Thomas warns that “although this rally has revitalized interest in the Solana network, there is debate over whether the recent rally has pushed its valuation beyond its intrinsic value.”
That is why he proposes to “discuss why some argue that SOL could be currently overvalued, with a particular focus on the role of memecoins and the psychological factors that are influencing the market.”
Specifically, The specialist believes that much of its recent activity “lacks sustainable foundations”which could call into question its current valuation if it fails to diversify its uses beyond speculative trading. He points out:
“SOL’s long-term success will depend on its ability to maintain meaningful use cases and grow its ecosystem beyond the temporary excitement of memecoins.”
Brad Thomas, cryptocurrency market analyst.
As CriptoNoticias reported, Solana recorded a record of daily transactions due to enthusiasm which generated the launch of the Pudgy Penguins (PENGU) token.
According to browser data Artemis, More than 66.9 million daily transactions were carried out on that network, the highest level since its creation in 2020.
What happened with PENGU illustrates Thomas’ point. In this case, euphoria over the token launch temporarily increased liquidity and market capitalization but it is not something sustainable in the long term. “This leads to eventual corrections,” he says.
However, Solana has legitimate uses backed by its speed, low fees, and an active community of developers. Even though your system has experienced disruptions lately, these aspects provide a solid foundation for your growth.
Taking into account the characteristics, Thomas maintains that it is important for it to explore long-term use cases in decentralized finance (DeFi) and enterprise adoption.
Perhaps on this last point, it will be important for the next administration of the United States Securities and Exchange Commission (SEC) to approve the applications that some companies submitted to launch their SOL-based exchange-traded funds (ETFs).
Due to the way ETFs work, the companies that manage them must acquire the asset to back their actions.
However, if the situation does not change, the specialist believes that “the current valuation could be anticipating future success, especially if much of the activity is linked to speculative memecoin trading, which is a losing game, just like the casino.” .
3 reasons why Solana would be overvalued
Likewise, the specialist indicates that SOL currently has an excessive dependence on retail investors, who “tend to make emotional decisions instead of fundamental analysis” and explains: “This dependence on speculation driven by retailers creates a fragile, vulnerable market structure to sudden corrections when sentiment changes.
Thomas reinforces this idea because, as mentioned above, memecoins are mainly driven by the hype and financial speculation, not for their (null) use cases or intrinsic value. “Once the boom subsides, activity on the network could decline, exposing the gaps between SOL’s valuation and its actual utility,” he adds.
On the other hand, he explains that Solana’s metrics could “be artificially inflated” precisely because the activity is linked to memecoins and “they give the appearance of a more robust ecosystem than what really exists.”
To do this, compare SOL’s market capitalization ($93 billion) to the network’s total value locked (TVL).
According to data from DeFiLlamaSolana’s TVL is $9.11 billion. It is important to clarify that this metric refers to the accumulated value of assets deposited in decentralized applications (dApps) on a network.
This implies that the practical activity on the network (measured by the TVL) is significantly lower compared to the value that the market places on the SOL token, suggesting that the network’s valuation is driven more by speculation than real, sustained use of its network.
Lastly, the author mentions that the Solana ecosystem took advantage of the “revival” after the FTX collapseone of the largest cryptocurrency exchanges on the market, filed for bankruptcy in November 2022.
SOL’s trajectory has been extremely volatile, especially after the bankruptcy of FTX in 2022, a situation that called into question the stability of this crypto asset and generated a period of low levels of trust in the network.
This event deteriorated confidence in Solana as a platform, as it was negatively associated with the fall of FTX. Furthermore, the exchange had a large amount of SOL in its possession, which was liquidated after the bankruptcy was declared. That generated downward pressure on its price.
For Thomas, that “revival» is overstated in terms of long-term growth and clarifies that it has only helped revive community interest, but may be overshadowing deeper concerns, «such as the concentration of developer activity or competition from other layer networks 1 like Ethereum and Avalanche.
Finally, the author does not rule out that the price of SOL suffers a correction in the short term and recommends implementing the DCA strategy (Dollar Cost Averaging) “as the memecoin craze begins to slow down.”