Solana (SOL) Price Rally: Driven by Bitcoin or Other Factors?
The price of Solana (SOL) has seen a 20% increase between September 28 and October 6. However, it is important to determine whether this rally is influenced by Bitcoin’s price movement or if there are other factors at play. Prior to the breakout, SOL faced a turbulent period after the US court approved the sale of $1.3 billion in SOL from bankrupt exchange FTX.
To prevent the liquidation of FTX assets from burdening the crypto market, the bankruptcy court mandated that the sale occur through an investment adviser in weekly batches following pre-established rules.
After reaching a two-month low of $17.34 on September 11, Solana regained some confidence among bulls when it re-established support at $20 on September 29. This coincided with a successful upgrade to version 1.16, leading to a 16% increase in the SOL token over the next seven days.
Solana’s rally can also be attributed to the growth in decentralized applications (DApps) usage and increased volumes of nonfungible tokens (NFTs). The cryptocurrency is now aiming to establish support at $23 and solidify its position as the fifth-largest cryptocurrency by market capitalization, surpassing Cardano.
Solana’s DApp and NFT Market Activity Surges
When analyzing networks that focus on DApp execution, it is crucial to consider the number of active users. Therefore, quantifying the addresses involved with smart contracts is a priority as it serves as a proxy for user count.
It is worth noting that the increase in activity was consistent across all sectors, including NFT marketplaces, decentralized finance (DeFi), collectibles, social, and gaming. Additionally, Solana’s active addresses engaged with DApps exceeded Ethereum’s during the same period.
Solana has gained traction in the NFT market due to its cost-efficient and scalable solution, where data is compressed and stored off-chain. This allows for more production in larger quantities as it requires lower minting fees, enabling creators to reach wider audiences.
In the past week, Solana surpassed Polygon in NFT sales, accumulating $6.8 million in value. However, in September, Solana totaled $23.9 million while Polygon achieved $31 million in NFT sales.
Network Upgrade Enhances Privacy and Eases Stress on Validators
The recent 20% price gain of Solana may be attributed to the network upgrade to version 1.16 on September 28. This upgrade introduced a “gate system” that ensures the gradual activation of new features on the network, maintaining stability and preventing issues caused by sudden changes.
The update also includes “confidential transfers,” which enhance user privacy by encrypting transaction details using zero-knowledge proofs. It also improves RAM usage for validators, introduces resizable data accounts, and provides a mechanism to identify corrupted data.
Overall, this update brings improved efficiency, privacy, and security to the Solana blockchain, marking a significant milestone in its development.
Stiff Competition from Ethereum Layer-2 Solutions
Despite Solana’s competition with other blockchain networks, Ethereum layer-2 solutions have gained more traction in terms of total value locked (TVL) and activity. For example, Arbitrum holds $1.73 billion in TVL and Optimism holds another $637 million, both significantly surpassing Solana’s $326 million according to DeFiLlama.
Although Solana has made progress in terms of privacy, scaling, and security, external factors beyond the FTX bankruptcy drama make it challenging to breach the $23 resistance. Investors remain primarily focused on the Ethereum ecosystem, which continues to lead in terms of developers and consolidated decentralized applications.
Hot Take: Solana’s Rally Shows Potential for Continued Growth
Solana’s recent rally indicates the cryptocurrency’s potential for continued growth. Factors such as increased DApp and NFT market activity, network upgrades for enhanced privacy and validator efficiency, and competition with Ethereum layer-2 solutions contribute to its positive trajectory. However, Solana still faces challenges in surpassing certain resistance levels and gaining widespread investor attention compared to Ethereum. As the fifth-largest cryptocurrency by market capitalization, Solana has established a solid position in the market but will need to continue its development and innovation to attract more users and investors.
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