With the price of Solana (CRYPTO: SOL) down by 36% in the last 30 days alone and the blockchain rocked by several high-profile scandals and outright scams, investors are wondering whether there’s a juicy opportunity to buy the dip here — or whether the digital coin’s glory days are firmly in the past.
There’s a correct move to make here, so let’s analyze the situation and chart a course for your portfolio.
Generally speaking, when an asset experiences a deep decline in its price, investors need to figure out why. Then, with those reasons in hand, they must compare their original investment thesis for buying the asset and determine whether that thesis is still valid in light of the new events that drove the decline.
In Solana’s case recently, the decline’s drivers are a short-term symptom of the blockchain’s success. As you may have heard, it’s the chain for gambling on meme coins.
You’ve probably also heard that Solana is where a lot of fraudulent activity happens. And as you can probably guess, very frequently it is the meme coin activity that is fraudulent in one way or another. There are some downsides to being a leader in minting new meme coins. But some sketchy schemes are larger and more attention-grabbing than others.
In an international scandal that’s still fulminating, in mid-February the president of Argentina, Javier Milei, endorsed the launch of a meme coin on Solana called $LIBRA. After its market cap initially soared to $4.5 billion, it subsequently crashed roughly 90%.
Then, in the aftermath, certain cryptocurrency influencers in the Solana community in the U.S. claimed that they had launched the token in conjunction with Milei as part of a bribery scheme for purposes that are currently unknown.
Furthermore, there are allegations that insiders linked to the token were able to cash out roughly $107 million, which would imply that the entire launch was a pump-and-dump scheme if the allegations are proved to be true. Legal investigations are ongoing in Argentina to uncover more details.
It’s unclear how the saga will be resolved, but one thing is clear: This is terrible publicity for Solana on multiple fronts. It doesn’t look good when heads of state are implicated in potentially criminal meme-coin launches.
Nor does it look good when highly visible influencers associated with a chain are exposed as promoting such activity, since it dramatically reduces the level of trust that fosters more investment dollars to flow in regularly.
But does that mean you should avoid buying Solana entirely, even when it’s a lot cheaper than it was before?
Think about why investors dumped Solana recently. The whiff of scandal is never appealing when it’s wafting over your investments. But a meme coin fiasco committed on Solana’s blockchain does not imply that the core reasons for buying it are reduced in any way.
After all, it still has a huge and growing ecosystem of projects in decentralized finance, art, artificial intelligence (AI) — and yes, meme coins. Its smart-contract functionality is still being actively developed. And it’s still an inexpensive and quick blockchain to transact on, compared to older chains like Ethereum, which is enabling Solana to siphon value from its clunkier competitors. All of these things drive higher demand for the coin.
If that isn’t enough, regulators are currently moving forward to approve the trading of Solana futures contracts on some exchanges, and it might also be held in exchange-traded funds (ETFs) quite soon if those also get approved. That kind of regulatory permissiveness would be a massive green light for the coin’s future value.
And in case you forgot, during the FTX scandal of early November 2022, Solana was the chain that was most affected by the wrongdoing and the subsequent fallout, losing more than 61% of its value in just a week after FTX went bankrupt. This scandal isn’t nearly as bad, and the coin’s price still eventually rebounded after the FTX crash.
So, should you buy the dip with Solana? I think you should, assuming you can accept that it’s a risky cryptocurrency play and that you might need to wait a bit for its price to recover from the current level. With more than one driver of higher prices already at work, the crypto will likely clear this bump in the road in due time.
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Alex Carchidi has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum and Solana. The Motley Fool has a disclosure policy.
Should You Buy the Solana Dip Right Now? was originally published by The Motley Fool
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