Solana (SOL 7.75%) and Ethereum (ETH -0.04%) are two of the largest and most popular cryptocurrencies for casual investors and professionals alike. But there are big differences in the narratives surrounding each of these currencies.
And while that doesn’t necessarily guarantee that they’ll actually perform differently over the long term, it’s still helpful to appreciate what the full-time investors are saying and why. Let’s take a look at each and analyze why sentiment is the way that it is so that you can separate the chatter from the valuable information more easily.
Hopes for Solana are soaring, and for good reason
With Solana’s price soaring by 170% over the last 12 months, it’s no surprise to anyone that cryptocurrency investors are incredibly bullish about the future of the coin.
On Jan. 19, the coin reached its highest price ever at nearly $296, which corresponds to a total market cap of $140 billion. But even that figure doesn’t quite capture the budding euphoria that the investor community is expressing regarding the chain’s potential to be a hub for artificial intelligence coins, meme coins, decentralized finance, art instantiated as non-fungible tokens, and other projects. Even the incoming president and his wife have launched official meme coins on Solana, and more celebrity figures putting their namesakes into a coin is thought to be all but guaranteed.
Furthermore, the Securities and Exchange Commission is set to decide whether to approve a Solana exchange-traded fund (ETF) by March of this year. Multiple potential issuers have filed the paperwork already, and with the election of what crypto investors perceive to be a crypto-friendly administration in the U.S., there’s widespread optimism about a potential approval and its (assumed) beneficial price impact.
Still, there are many areas of consternation that potential buyers should know about, which are expressed even among Solana diehards.
Newly launched coins are often considered to be outright scams until proven otherwise. And, as shown by the network congestion on Jan. 19 that prevented people from completing transactions or in many cases even checking their account balances, there’s still a lot of work to do when it comes to building up the network’s throughput capacity.
Ethereum’s underperformance is starting to cause evangelists to crack
Unlike Solana, the prevailing sentiment around Ethereum is one of uncertainty, hesitation, and in some cases, outright pessimism.
Over the last 12 months, the coin’s price rose by 28%, meaning that it outperformed the stock market’s gain of around 24% in the same period — but still made investors feel as though they’d missed out on Solana’s tremendous gains. Despite the approval of an Ethereum ETF last year, consistent inflows to the chain have been lacking.
The reasons for this relative underperformance have caused a lot of hand-wringing, even among longtime holders. Many investors have swapped their Ethereum for Solana, and to good effect. But there is little reason to expect that Ethereum’s difficulties will continue forever, as it’s still the second-largest cryptocurrency, and there are still many evangelists who believe in its future.
The chain’s semi-governmental body, the Ethereum Foundation, responded to those concerns on Jan. 18 by announcing significant changes to its leadership structure, seeking to shore up its technical chops and its integration with the chain’s project ecosystem so as to better shepherd Ethereum’s development moving forward. Surprisingly, the investor reaction to that announcement has been relatively tepid, indicating that deep skepticism of the chain’s potential to continue growing may have already taken root.
The next year or so will be critical for solving some of the chain’s long-standing problems, like expensive gas fees and slow transaction times. Especially with the powerful tailwind of a cryptocurrency-friendly administration in the U.S., if the coin can’t pick up some momentum, sentiment is all but certain to sour further, and perhaps on a more permanent basis.
Of course, the opposite is also true: There aren’t too many malaises in the world of cryptocurrency that can’t be repaired and forgotten with a few months or years of robust platform development and upward price action.
Alex Carchidi has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum and Solana. The Motley Fool has a disclosure policy.
