The S&P500(SNPINDEX: ^GSPC) market index has achieved a total return of 25% in 2024. That’s a fantastic year for the stock market, but it can’t match the crypto market.
According to CoinMarketCap, the market value of each cryptocurrency was $1.65 trillion at the end of 2023. The combined market capitalization is $3.30 trillion as of December 19, doubling in less than twelve months.
Crypto pioneer Bitcoin(CRYPTO: BTC) increased by 138% in the same period. Innovator of smart contracts Solana(CRYPTO: SOL) showed a gain of 101%, just ahead of the crypto sector as a whole.
But the image changes if you zoom out a little. From the doldrums of December 2022, Solana stands head and shoulders above Bitcoin and the stock market with a price gain of 2,000%:
Solana Price Data by YCharts
So Solana has a recent history of outperforming Bitcoin, even though the larger cryptocurrency enjoyed some pretty fantastic returns over the same period. It would be pretty great if this two-year trend could continue into 2025 and beyond.
Is this a good time to rebalance your crypto holdings and withdraw from Bitcoin and buy more Solana instead?
First of all, I would like to point out that Solana’s recent price increase started from a very low point.
Caught in the financial collapse 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 drop of that magnitude, but it’s still an easier task than skyrocketing from a higher starting point. Bitcoin also suffered from the FTX debacle, but the price drop was much smaller than Solana’s. In other words, Solana’s stellar profits from summer 2022 were supported by an artificially low starting price.
On the plus side, Solana is ready to perform. The cryptocurrency is still a top performer when it comes to quickly executing smart contracts, which is good for automating financial transactions and other asset-based changes.
Solana’s high-speed contracts are particularly useful when you’re managing a large volume of these decentralized programs simultaneously under time pressure. This includes mobile games, alongside blockchain-based trading platforms and non-fungible token (NFT) sales. One day you might even buy gum and gasoline with a quick Solana transaction. That’s the kind of thing a cryptocurrency with smart contracts and fast transaction settlement can do.
Therefore, Solana’s return to the top 10 major and popular cryptocurrencies makes sense. Owning a Solana is probably a good idea in 2024, as the token will likely see widespread use in real-world applications in the coming 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 economics function for the fourth time, halving the number of coins issued when a new block of Bitcoin transaction data is processed. These halvings have historically led to impressive price gains about a year later, and there is no reason to believe this cycle will be any different.
Exchange-traded funds (ETFs) based on current Bitcoin prices are about a year old. Their introduction was expected to bring a lot of new capital to the crypto market, using tools already familiar to every stock investor. About 5.2% of all Bitcoins have made their way into the spot Bitcoin ETFs to date, led by the massive iShares Bitcoin Trust(NASDAQ: IBIT). Capital inflows picked up the pace in November, although this week’s disappointing economic reports led to the largest outflows in a single day yet. Even Bitcoin and its ETFs are still quite volatile.
November’s Bitcoin enthusiasm referenced the election results. The new Trump administration brings a more crypto-friendly stance to the Capitol and White House, and the newly elected president has included support for cryptocurrency in his campaign. This regime change could, among other things, lead to the creation of a national Bitcoin reserve, which would increase the price of the cryptocurrency by making it even scarcer on the open market.
I could go on and bore you to tears with technical data and promising market trends, but you get the idea: Bitcoin doesn’t stand still. Solana will have to work hard to defeat this behemoth in the long run.
It may sound funny, given Bitcoin’s long history of wild price swings and persistent volatility, but digital gold is evolving into a solid asset of value. There are no ‘safe bets’ in the crypto market, but Bitcoin comes pretty close. A sharp turn of events could make Solana a footnote in crypto history, but a massive change is needed to make Bitcoin obsolete.
As a long-term investor, I would rather have a large Bitcoin holding and a smaller, speculative Solana investment than the other way around. To be clear, I own a little bit of both. Still, Bitcoin’s future price trends will make a much bigger difference to my savings than Solana’s ever could.
And that’s how I like it. Your mileage may vary, but Bitcoin seems like the stronger investment idea to me.
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Anders Bylund has positions in Bitcoin and Solana. The Motley Fool has positions in and recommends Bitcoin and Solana. The Motley Fool has a disclosure policy.
Should You Forget Bitcoin and Buy Solana Instead? was originally published by The Motley Fool
