After a run-up of more than 160% during the past three years, Solana's (CRYPTO: SOL) price is near $270 (as of Jan. 22). But, there's a solid set of arguments for why it can go much higher -- perhaps even as high as $500 or more, and perhaps as soon as before the end of the year.
So without further ado, here are the three most important reasons it might more than double in the near term.
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1. The government may start buying it
It's no secret that the new Trump administration is unabashedly in favor of loosening restrictions on the cryptocurrency industry. Beyond that, there is ongoing discussion regarding creating a national cryptocurrency reserve.
Cryptocurrencies developed in the U.S., like Solana, have been floated as being included in that reserve, if it is ever is established. Right now, Solana's market cap is almost $130 billion. For a country the size of the U.S. to have a stockpile of some sort of any appreciable size, it's hard to imagine it holding less than $1 trillion in the currencies it targets. And for Solana, that would mean lots of fresh buying pressure, driving up prices.
More importantly, holding Solana in a national reserve would be a huge ratification of its value as an asset. Investors would have confidence that the biggest of the cryptocurrency whales -- meaning the world's richest government -- would be shepherding the value of their investment. That would likely keep prices anchored to a higher floor than before.
2. It's showing relative strength against a key competitor across multiple dimensions
Solana's primary cryptocurrency competitor is Ethereum (CRYPTO: ETH , an older and significantly larger blockchain that pioneered many of the general features that Solana implements.
But Solana has long been considered as an Ethereum killer thanks to its low gas fees (user fees), fast transaction times, and its high ease of use for non-cryptocurrency natives. From the point of view of the typical investor, there's little in terms of decentralized finance (DeFi) or manipulating non-fungible tokens (NFTs) that can be done on Ethereum that can't be done faster and cheaper on Solana.
Take a look at this chart:
Solana Price data by YCharts
Solana looks to be eating Ethereum's lunch. As more investors tire of waiting for Ethereum to perform, they'll likely defect to Solana, and that will increase demand for the coin.
3. It's the top blockchain for investing in memes
Although the wisdom of investing heavily in meme coins is questionable, it's a fact that the vast majority of the largest meme coins by market cap are hosted on the Solana blockchain. It's also true that a very large majority of all meme coins in existence, as well as most of the ones being made each day, are on Solana.
Meme coins as an asset class are not going away. They're fun, and they appeal to investors who feel like they don't have an edge in the traditional financial markets due to the tremendous amount of information that efficiently competing in those markets requires on average. And while it's inadvisable to try investing in these assets to get rich quickly, the stories of relatively humble investors claiming to strike it rich via meme coins are sure to attract others to invest in the chain.
Furthermore, before investors can buy many meme coins, they'll need to buy Solana first to make their purchases.
It's unclear precisely how much buying pressure that will create over the long term. Nonetheless, meme coins also serve to lock down some of the circulating Solana into places where it won't leave the ecosystem. After all, nobody wants to sell at a loss, so after periods of speculative mania, many investors will simply leave their Solana locked up in their underwater meme coin positions rather than liquidating it.
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
