He S&P 500(SNPINDEX: ^GSPC) The market index has seen a total return of 25% in 2024. It is a fantastic year for the stock market, but it cannot be compared to the cryptocurrency market.
According to CoinMarketCap, the market value of each cryptocurrency amounted to $1.65 trillion at the end of 2023. The combined market capitalization amounts to $3.30 trillion on December 19, which is a doubling in less than 12 months.
Crypto Pioneer bitcoin(CRYPT: BTC) gained 138% during the same period. Smart contracts innovative solarium(CRYPT: SUN) showed a 101% gain, just ahead of the crypto sector as a whole.
But the image changes if you zoom out a little. As of the December 2022 crisis, Solana stands well above Bitcoin and the stock market with a 2000% price gain:
So Solana has a recent history of outperforming Bitcoin, even though the largest cryptocurrency enjoyed a pretty fantastic performance in the same time period. It would be pretty surprising if that two-year trend could continue into 2025 and beyond.
Is this a good time to rebalance your cryptocurrency holdings and exit Bitcoin to buy more Solana?
First of all, let me point out that Solana’s recent price surge started from a very low point.
Caught in the financial crisis of Sam Bankman-Fried’s FTX crypto exchange, Solana had recently fallen from $259 to $10 per token in about a year.
It’s not easy to recover from a fall of that magnitude, but it’s still an easier task than shooting yourself from a higher starting point. Bitcoin also suffered the FTX debaclebut its price drop was much smaller than that of Solana. In other words, Solana’s stellar earnings since the summer of 2022 were helped by an artificially low starting price.
On the positive side, Solana is ready to perform. The cryptocurrency continues to outperform when it comes to executing smart contracts quickly, which is good for automating financial transactions and other asset-based exchanges.
In particular, Solana high-speed contracts are useful when managing a large volume of these decentralized programs at the same time in a time-pressured situation. Mobile gaming comes to mind, along with blockchain-based trading platforms and non-fungible token (NFT) sales. Someday, maybe you can even buy gum and gas with a quick Solana transaction. That’s the kind of thing a cryptocurrency can do with smart contracts and fast transaction settlement.
Therefore, Solana’s return to the top 10 list of large and popular cryptocurrencies makes sense. Owning some Solana will probably be a good idea in 2024, as it seems likely that the token will be widely used in real-world applications over the next few years.
But can Solana outperform Bitcoin right now? Maybe, but I’m not so sure. Bitcoin has too many growth catalysts:
Bitcoin recently updated its economic function for the fourth time, halving the number of coins that are issued when a new block of Bitcoin transaction data is processed. Historically, these halvings have led to impressive price increases about a year later, and there is no reason to believe this cycle will be any different.
Exchange-traded funds (ETFs) based on updated Bitcoin prices are about a year old. Its introduction was expected to attract a lot of new capital to the cryptocurrency market, using tools already familiar to any stock investor. Around 5.2% of all Bitcoins have so far found their way into Bitcoin spot ETFs, led by the huge iShares Bitcoin Trust(NASDAQ:IBIT). Capital inflows accelerated in November, although this week’s disappointing economic reports led to the largest single-day capital outflow yet. Even Bitcoin and its ETFs remain quite volatile.
November’s Bitcoin enthusiasm referenced the election results. The incoming Trump administration brings a more crypto-friendly attitude to Capitol Hill and the White House, and the president-elect included support for cryptocurrencies in his campaign. Among other things, this regime change could lead to the creation of a national Bitcoin reserve, which would increase the price of the cryptocurrency making it even more scarce on the open market.
I could continue to bore you with technical data and promising market trends, but you get the idea: Bitcoin doesn’t stand still. Solana will have to work hard to beat this giant in the long run.
It may sound funny, given Bitcoin’s long history of wild price swings and continued volatility, but digital gold is evolving into a solid asset that maintains value. There are no “sure bets” in the cryptocurrency market, but Bitcoin comes pretty close. A sharp turn of events could make Solana a footnote in cryptocurrency history, but a huge sea change is needed to make Bitcoin obsolete.
As a long-term investor, I prefer to have a large stake in Bitcoin and a smaller speculative investment in Solana than the other way around. To be clear, I have a little bit of both. Still, future Bitcoin price trends will make a much bigger difference to my savings than Solana.
And that’s how I like it. Your mileage may vary, but Bitcoin strikes me as the soundest investment idea.
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Anders Bylund has positions in Bitcoin and Solana. The Motley Fool has positions and recommends Bitcoin and Solana. The Motley Fool has a disclosure policy.
