Should You Buy Solana While It's Under $250?

Solana (CRYPTO: SOL) was the crypto darling of 2021, gaining more than 11,000% during the year. The super-fast smart-contract blockchain exploded into the top 20 cryptos by market cap in April 2021, and it continues to shine. This January, Solana set a new high of almost $295. It traded between around $190 and $250 in September.

If you're wondering what's next for Solana, Standard Chartered analysts predicted back in May that Solana would finish the year at $275 and reach $500 by 2029. I think Solana could not only meet those targets, but also surpass them -- as long as it can continue to capture a growing portion of the stablecoin and tokenized asset markets. However, to do that, it needs stability as well as speed.

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Follow the money

If you look at Solana's historical charts, there's a close correlation between its price and its total value locked (TVL) -- the amount of money locked in smart contracts on its ecosystem. For example, its price peak in January corresponded with a record-high TVL.

Solana currently has $12.5 billion in TVL, per DefiLlama, making it the second-biggest chain with about 9% of all on-chain funds. Admittedly, this is a long way behind the $94 billion TVL for top dog Ethereum (CRYPTO: ETH).

But Solana doesn't have to beat Ethereum to succeed. There could be space for both. It has to establish its own identity and expand the projects and value on its ecosystem. It is doing exactly that. At the start of 2024, Solana's TVL was just $1.4 billion -- just over a 10th of where it is today. Now it needs to sustain that TVL growth, with increased usage in decentralized finance (DeFi), stablecoins, tokenized assets, and more.

Why buy Solana at under $250?

Solana's TVL (and price) have often soared after a particular crypto trend -- such as January's Pump.fun memecoin frenzy. Non-fungible tokens (NFTs) drove a lot of value back in 2021-22 when it seemed as if everybody wanted a digital bear, ape, or pet rock.

Today, all eyes are on stablecoins and other tokenized real-world assets (RWA). Solana is starting to capture part of the RWA market, which could drive further TVL growth.

Blockchain tokens represent ownership of real-world assets. For example, tokenizing ownership of a piece of real estate could allow people to own even small fractions of property. And tokenized stocks mean people can trade a token that represents the value of a share. The token issuer will usually hold the actual stock in a reserve account.

The important aspect of tokenized assets for Solana is that they aren't a flash-in-the-pan fad. If they take off, they could be a long-term use blockchain case that drives value. A June report from Standard Chartered predicts that tokenized assets could be worth more than $30 trillion by 2034. RWA.xyz, which tracks RWA data, estimates there's about $33 billion in tokenized assets on-chain today.

RWA.xyz data also shows that the amount of tokenized assets on Solana is growing. It grew by almost 40% in September to about $683 million (excluding stablecoins). That's almost 4% of the total market share. Solana has tokenized treasury funds, institutional funds, equities, private credit, and more.

There are a couple of potential headwinds that could slow Solana's growth. One is regulation. A clear legal framework will be crucial as tokenized assets evolve. Another is technical. Solana has had some issues in the past, with three outages in 2022 alone. Technical developments, particularly its Firedancer upgrade, should help -- the network has not gone offline since February 2024. Even so, any further problems could seriously impede its ability to compete.

Tokenization could push Solana to new highs

The growth of tokenized assets could well be the transformative moment cryptocurrencies have been waiting for. It combines the strengths of the blockchain in terms of transparency, accessibility, and security with practical uses in the real world. However, it is early days and it isn't yet clear how this market will develop. Cryptocurrencies remain high-risk investments and its important they make up only a small portion of your portfolio.

Solana's speed, low transaction costs, scalability, and innovation mean it is well positioned to capture a significant segment of the growing tokenization market. Historically, its price has increased in correlation with the value locked on the platform. While past performance is no guarantee of future results, the potential for increased value shows Solana has strong near- and long-term prospects.

Emma Newbery has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum and Solana. The Motley Fool recommends Standard Chartered Plc. The Motley Fool has a disclosure policy.