The price of Solana’s cryptocurrency SOL has experienced a significant 20% gain between September 28 and October 6. However, investors are curious about whether this rally is due to a correlation with Bitcoin’s price movement or if other factors are driving the surge. Prior to the price breakout, SOL went through a turbulent period after a US court approved the sale of $1.3 billion in SOL from the bankrupt exchange FTX.
To ensure that the liquidation of FTX assets does not burden the crypto market, the bankruptcy court has implemented measures requiring the sale to occur through an investment adviser in weekly batches and in accordance with preestablished rules. This move has helped stabilize SOL’s price, which had dropped to a two-month low of $17.34 on September 11. Bulls gained confidence as SOL managed to reestablish the $20 support on September 29. Furthermore, the successful upgrade to version 1.16 boosted SOL by 16% over the following seven days.
SOL’s rally has been supported by the growth of decentralized applications (DApps) and increased volumes of nonfungible tokens (NFTs) on the Solana network. The price of SOL is now attempting to establish a $23 support level and solidify its position as the fifth-largest cryptocurrency by market capitalization, surpassing ADA’s $9.22 billion.
Analyzing networks focused on DApp execution requires considering the number of active users. In the case of Solana, the number of addresses involved with smart contracts serves as a proxy for the number of users. The increase in activity has been consistent across all sectors, including NFT marketplaces, decentralized finance, collectibles, social applications, and gaming. Notably, Solana’s active addresses engaging with DApps exceeded those of Ethereum in the same period.
Solana has gained traction in the NFT market due to its cost-efficient and scalable solution. Data is compressed and stored off-chain, allowing for viable production in larger quantities with lower minting fees. This advantage enables creators to reach wider audiences. Over the past seven days, the Solana network has surpassed Polygon in NFT sales, accumulating $6.8 million in value. In September, Solana recorded $23.9 million in NFT sales, while the Polygon network achieved $31 million.
The recent 20% price gains of SOL can be attributed to its network upgrade to version 1.16. This upgrade introduced a “gate system” that ensures the gradual activation of new features, maintaining network stability and preventing issues caused by sudden changes. The update also includes “confidential transfers” that enhance user privacy through the use of zero-knowledge proofs. Additionally, improvements in RAM usage for validators, resizable data accounts, and a mechanism to identify corrupted data enhance efficiency, privacy, and security on the Solana blockchain.
Despite Solana’s progress in various aspects, Ethereum layer-2 solutions have gained more traction in terms of total value locked (TVL) and activity. For example, Arbitrum and Optimism hold $1.73 billion and $637 million in TVL, respectively, while Solana has $326 million. This stiff competition and external factors, beyond the FTX bankruptcy drama, have made it more challenging for SOL to breach the $23 resistance level.
Ultimately, investors remain primarily focused on the Ethereum ecosystem, given its leadership in terms of developers and consolidated decentralized applications. While Solana continues to make advancements, it faces tough competition in the market. It is crucial for investors to consider these external factors before making any investment decisions.
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