Solana (SOL) is starting to attract attention as a strong competitor to Ethereum (ETH), despite its market capitalization being about four times smaller than that of the major smart contract platforms.
On October 23, the SOL/ETH trading pair hit a new high of around 0.0692 ETH. The move is part of a bull market that has seen the stock rise 600% since 2023.
SOL/ETH weekly price chart. Source: TradingView
Solana’s rise against Ethereum has sparked discussion about its potential to upend Ethereum’s market cap in the not-too-distant future.
source: X
At the heart of this optimistic Solana outlook is growing network usage and future updates that could reduce Ethereum’s dominance in the blockchain space.
Solana’s DEX volume approaches Ethereum.
One of the main drivers of Solana’s recent surge appears to be the explosion of decentralized exchange (DEX) usage on the platform.
For example, Solana’s daily DEX trading volume (gray) has been steadily increasing since August 2023, with a clear acceleration beginning in early 2024. At times, it matched or surpassed Ethereum’s DEX trading volume (green) during peak periods.
Solana and Ethereum DEX Volume. Source: Ally/Dune Analytics
Ethereum continues to dominate DEX trading volume, maintaining a significantly higher average daily trading range than most layer 1 competitors, including Solana.
Nonetheless, Solana’s continued growth signals its growing appeal to network traders and suggests that user behavior is shifting towards Solana-based DEX platforms.
Solana’s low transaction fees and fast transaction speeds make it an attractive destination to launch an untold number of new tokens. Many of them fall into the memecoin category.
Most Solana DEX users have been engaging in memecoin-related activity (gray bars in the chart below) throughout 2024, and the volume has exploded in recent weeks.
Solana Trader by Sector. Source: Ally/Dune Analytics
The “WIF & BONK sector” (orange), representing popular memecoin projects, has also seen an uptick, indicating that these projects are a large part of Solana’s recent increased activity.
“ETH may never hit all-time highs again,” added analyst Jack.
“SOL is actually doing something I never thought was possible: replace the entire network and get all the users.”
relevant: Ethereum ICO participant dumped 3,000 ETH to cash out $7.6 million.
Can SOL actually “flip” ETH?
The likelihood of Solana “flipping” beyond Ethereum in both technical capabilities and market value may be particularly heightened by memecoins, which have been a significant driver of Solana’s recent growth.
Historically, MEMCOIN has thrived in bull market situations when speculation is high, but has faced severe corrections during market downturns.
Today, Solana would need to grow 3.5 times its current market capitalization to reach Ethereum’s $304 billion valuation. However, analysts at VanEck speculate that Solana could reach 50% of ETH’s value in the next few years if it continues to outperform Ethereum in terms of daily active users and trading volume.
SOL vs ETH market cap. Source: TradingView
Meanwhile, Bitfinex analysts suggest Solana’s success will depend on expanding its user base beyond speculative traders. To achieve long-term, sustainable growth, Solana must attract DeFi enthusiasts, traditional financial institutions, and enterprises.
They pointed out that the Firedancer upgrade in 2025, which aims to increase Solana’s ability to process up to 1 million transactions per second, could potentially make Solana’s network more attractive to large investors and institutions.
Excerpt from Bitfinex report:
“If Solana can capitalize on this (Firedancer) growth, the ‘flip’ of Solana surpassing Ethereum in market capitalization could be more than just a speculative theory.”
relevant: Solana has 100 million active wallets, but most of them are empty.
Tech experts hint at a big downturn in 2025.
However, Solana’s technology is already extremely overvalued compared to Ethereum, suggesting that a correction is likely in the future.
At least three indicators are showing signs of weakness, including the overbought weekly Relative Strength Index (RSI), a bearish divergence, and the possibility of a rising wedge breakout.
The weekly RSI for the SOL/ETH pair is close to 70, indicating that it is entering overbought territory. Meanwhile, the gap between the rise in SOL/ETH price and the decline in RSI is growing, signaling weakening price momentum.
SOL/ETH weekly price chart. Source: TradingView
Finally, Solana price is slowly rising inside a rising wedge, a bearish pattern characterized by converging trend lines. A breakdown of this structure is likely to lead to a sharp decline, with potential targets around the lower Fibonacci retracement level.
If a breakdown occurs, SOL/ETH could fall to the 0.0357-0.0436 ETH range by early 2025. This target represents a potential reduction of 40-50% from current levels.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.