I’ve been researching Solana in-depth for a few weeks now and will try to conclude my research in this article. I think Solana is an exciting project technologically, but is Solana a good investment?
Yes, Solana is a good investment because of the growing ecosystem of applications, the strategic partnerships, the institutional adoption, the solid token economics, and the bullish technical analysis predicting that it will outperform Ethereum and increase between 250% and 950% in 2021 or 2022.
I think that Solana has the potential to reach $1000. However, just because it has the potential to do it does not mean it is likely.
Let’s try to figure out a more likely price target by performing technical analysis and doing some good ol’ math!
The Tokenmoics Of Solanas Token – SOL
Analyzing the supply mechanics is important for figuring out if Solana is a good investment or not.
(The numbers used below are taken from coinmarketcap.com and docs.solana.com/inflation)
Solana has a circulating supply of 273 000 000 SOL, which means that 273 million SOL are floating around on the open market, in smart contracts, or locked in staking.
However, the total supply is almost 500 million. This means that there will be a circulating supply of almost 500 million SOL at some point in the future.
“Sure, but why should I care?”
Because the price of a token/coin is a function of market cap / circulating supply!
It then logically follows that if the circulating supply doubles, the price per SOL is cut in half.
I figured out how Solana plans to distribute their tokens and their planned inflation rate (how fast the supply grows).
– Initial Inflation Rate: 8% (Inflation in 2020)
– Dis-inflation Rate: −15% (The change in inflation every year)
– Long-term Inflation Rate: 1.5% (The inflation after 5-10 years)
This means that the inflation of 2020 was 8%, which lead to downward pressure on the price at 8%. However, this downward pressure decreases by 15% every year, leading to a decreasing inflation rate over time. After a decade or so, the target inflation rate is 1.5%:
I think that this is a reasonable inflation rate. It’s a bit high initially, but this is to incentivize staking and developing to get the ball rolling.
The target of 1.5% is perfect for Solana. This keeps the staking lucrative without having a large downward pressure on the price.
In summary, the tokenomics and decreasing inflation rate make Solana a good investment, at least in the long term.
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Technical Analysis On Solana As A Long-term Investment
Let’s take a look at the charts, and see if we can learn something from them. I could not find anything useful in the SOL / USD and SOL / BTC charts, but in the SOL / ETH chart, it’s looking good:
SOL / ETH
This chart shows us how much ETH we can get for one SOL. If the chart goes up, it means that SOL is outperforming ETH. If it moves down, it means that SOL is underperforming ETH.
Below you see that this chart is in favor of SOL:
On the chart above, we see that in March of 2021 we got rejected by the previous all-time high (ATH).
We managed to flip the resistance (previous ATH) into support in April – a major bullish sign.
Then, we tested it again in May, for three – weeks. This test was successful, and we managed to stay above the support line.
A successful, multi-week test of the previous ATH is one of the most bullish signs there is.
This makes me “long-term optimistic” on the price of Solana.
Let’s do some speculation:
I think Ethereum is going to $8000 either in 2021 or 2022. At the time of writing, the price is $2.3K.
This means that the price of Ethereum will increase 3.5x.
Given the chart above, I think that Solana will outperform Ethereum. This means that Solana will do better than 3.5x.
The current price of Solana is about $40. A 3.5x would take it to $140.
In other words:
The minimum price I think Solana is going to reach is $140. It’s possible that it can reach $200 if things go well. If things go really well for Solana, and they manage to outperform Ethereum by 3x, the price will reach $420.
Other Factors Making Solana A Good Investment
Solana has great fundamentals. Technologically, their way better than Ethereum, Cardano, and Ripple. It’s faster, more scalable, and cheaper to use.
It also has a fast-growing ecosystem of applications built on it, and loads of strategic partnerships.
To top it all off, institutions are showing interest and investing in the Solana ecosystem. That’s is huge…
(I write more about these things in “Can Solana Reach 1000 Dollars?“)
All these factors, combined with the bullish technical analysis and solid tokenomics, make Solana a good investment. Actually, I think it’s a great investment.
Personally, I have bought some Solana:
At the time of writing, Solana takes up 3% of my portfolio. However, I’m going to increase this allocation over time.
Conclusion: Yes, Solana Is A Good Investment
Solana is a good investment because:
1) the growing ecosystem
2) the strategic partnership
3) the institutional interest
4) the solid tokenomics
5) the bullish technical analysis, predicting it will outperform Ethereum and increase at least 250% in 2021 or 2022.
I practice what I preach and have bought Solana. Also, I plan to buy more Solana over time.
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