Reasons Solana Is Plummeting: Should You Buy Now?

Last Updated April 8th 2022

5 Min Read

Solana is down 55% from its all-time highs, but it could go lower.

Key Points

Solana has dropped due to broader market correction and internal network problems.
While Solana could rally again in the future, there are no guarantees.

In 2021, Solana rose to 5th place in the market cap. Quite a feat, given that at the start of the year, Solana was not even a top 100 cryptocurrency by market capitalization.

So what exactly is Solana, and why has it shot to prominence in such a short time? Solana is a next-generation smart contracts cryptocurrency with low fees and incredible speeds. We all know that Ethereum (ETH) is currently the number one platform blockchain for developing decentralized applications. However, if Solana metrics (50,000 TPS) are anything, this dominance may not last.

Despite its competitive edge in the smart contracts market, 2022, so far, has been a rather dull year for Solana. From highs of $260 back in November 2021, Solana is down by 55.9%.

Let's now go through some of the reasons why Solana is plummeting and find out whether you should buy SOL now.

1. The Cryptocurrency Market Has Been Bearish For Most Of 2022

Since the highs of November 2021, money flow into the cryptocurrency market has dropped significantly. The bear run has been compounded by macro issues that have little to do with cryptocurrencies. For instance, the Federal Reserve and central banks in other core markets, such as the UK and the EU, have been rising interest rates and signalling more hikes.

Then in February, the situation was worsened by the Russian invasion of Ukraine, which triggered sanctions that have impacted markets globally.

Rising interest rates and the war in Ukraine have created so much uncertainty that investors have slowed down on buying high-risk assets such as cryptocurrencies.

2. Solana Had Technical Issues Late Last Year

Solana's parabolic run slowed down drastically towards the end of 2021. This followed a couple of network outages in less than 6-months. For instance, the Solana network went out for 17 straight hours in September. While such outages are part of the growth process, some analysts raised concerns that Solana may have a design flaw that could lead to more such outages. One of the biggest concerns that investors have is that Solana is using a new technology that is not as tested as that used by older smart contract cryptocurrencies such as Ethereum. This has led to a slowdown in the money flow into Solana.

3. Solana Was Already Primed For A Correction

Speculation is a big part of crypto investing, and people buy coins simply based on the hope that prices will rise even further in the future. The result of this FOMO-driven buying is that in bull markets, it can push cryptocurrencies way beyond their true value.

The worst part is that cryptocurrencies play by different rules from the stock market. Unlike the stock market, where you can use metrics like P/E to find out the asset's true value, cryptocurrencies do not have such metrics. While there are ways that a cryptocurrency investor can gauge the value of a cryptocurrency, such tools are not yet fully developed. Besides, such tools are not easily available to the average retail trader.

Speculation in cryptocurrencies is not without basis, though. Projections are regularly thrown out there that blockchain technology could easily become a $100 trillion market in less than a decade. Imagine a world where blockchain stores and transmits data more efficiently in all industries. This has the potential for a major change in many aspects of life, from healthcare to finance. With such potential, it is not hard to imagine blockchain being a $100 trillion market hence the urge to jump at the opportunity early. Unfortunately, in a rush to get in early, many cryptocurrencies have been overpriced.

This is exactly what happened to Solana all through 2021. Once people got wind of its scaling capabilities FOMO kicked in. By November 2021, Solana was up by over 11,000%, which meant that it was getting massively overpriced. A massive correction was only the next logical step, which has happened for most of 2022.

Check Out: Solana (SOL) Price Prediction

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Should You Buy Solana Now?

The best time to buy any asset is after a price correction. So, is Solana a good investment in 2022 now that it is down by 55% from its all-time highs? The decision to buy Solana now should be based on the understanding that there are no guarantees in crypto.

For context, while Solana is already down by 55%, there are no guarantees that it has bottomed out. There is so much going on at the macro level that there is no telling where the cryptocurrency market could go next.

The war in Ukraine continues to trigger reactions that no one can truly tell how they will impact the global economy. For instance, despite the recent hikes in interest rates, inflation is soaring globally, which means even more aggressive rates hikes could follow. This could mean an even bigger outflow of money from risky assets.

Besides, a three-month price dip is not a good enough reason to invest in Solana. If you are investing and not just doing a short-term gamble, you need to review Solana from a longer-term perspective. For instance, you need to look at Solana's potential for adoption in the next 5-years. Where you see Solana in the next 5-years should be the biggest guiding principle on whether you buy Solana now or not.

Simply put, invest in Solana if you believe the following hold true:

You believe Solana has good odds of adoption long-term.
You don't need the money invested. This means if you get an emergency or need to retire now, you can do so comfortably without relying on the money invested in Solana.
You can lose the money you want to invest in Solana and still live comfortably.
You have a good understanding of the volatility of the cryptocurrency market. This means even if Solana's price drops further, you can afford to hold on.

While cryptocurrency investing could be a pathway to great wealth, it is also extremely risky. If you fully understand the risks and want to invest in Solana today, only do so through a reputable cryptocurrency exchange. Also, make sure the amount invested in crypto only constitutes a small and manageable portion of your overall investment portfolio.