The S&P 500(SNPINDEX: ^GSPC) The market index recorded a total return of 25% in 2024. This is a fantastic year for the stock market, but it can’t hold a candle to the crypto market.
According to CoinMarketCap, the market cap of each cryptocurrency was $1.65 trillion at the end of 2023. The combined market cap is up to $3.30 trillion as of December 19, doubling in less than 12 months.
Crypto pioneer Bitcoin(CRYPTO:BTC) increased by 138% over the same period. Smart contracts Innovator Solana(CRYPTO: SOL) recorded an increase of 101%, just ahead of the entire crypto sector.
But the picture changes when you zoom out a little. Since the December 2022 lull, Solana has been well above Bitcoin and the stock market with a price increase of 2,000%:
So Solana has outperformed Bitcoin recently, despite the larger cryptocurrency posting 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 exit Bitcoin to buy more Solana instead?
First, let me point out that Solana’s recent price increase started from a very low point.
Solana was caught up in the financial collapse of Sam Bankman-Fried’s FTX cryptocurrency exchange and recently fell from $259 to $10 per token in about a year.
Recovering from a decline of this magnitude is not easy, but it is still an easier task than shooting up from a higher starting point. Bitcoin also suffered the FTX debaclebut the price drop was much smaller than that of Solana. In other words, Solana’s huge gains from summer 2022 were supported by an artificially low starting price.
On the positive side, Solana will produce good results. The cryptocurrency remains at the forefront of fast execution of smart contracts, which is well suited for automating financial transactions and other asset-based changes.
Solana’s high-speed contracts are particularly useful when you are pressed for time and need to manage a large amount of these decentralized programs at the same time. In addition to mobile games, blockchain-based trading platforms and the sale of non-fungible tokens (NFT) come to mind. One day you might even buy gum and gas with a quick Solana transaction. This is what a cryptocurrency can do with smart contracts and fast transaction processing.
Therefore, Solana’s return to the top 10 list of large and popular cryptocurrencies makes sense. Owning Solana is probably a good idea in 2024, as the token is expected to see widespread use in real-world applications in the next few years.
But can Solana outperform Bitcoin at this point? Maybe, but I’m not so sure. There are too many growth catalysts for Bitcoin:
Bitcoin recently updated its economic feature for the fourth time, halving the amount of coins issued when a new block of Bitcoin transaction data is processed. These halvings have historically resulted in 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 current Bitcoin prices are about a year old. Their launch should bring a lot of new capital into the crypto market, leveraging tools that every stock investor is already familiar with. About 5.2% of all Bitcoins have found their way into the spot Bitcoin ETFs so far, led by the massive iShares Bitcoin Trust(NASDAQ:IBIT). Capital inflows accelerated in November, but this week’s disappointing economic reports led to the largest single-day outflow ever. Even Bitcoin and its ETFs are still quite volatile.
The Bitcoin enthusiasm in November was related to the election results. The new Trump administration is bringing a more crypto-friendly stance to the Capitol and the White House, and the president-elect has included cryptocurrency support in his campaign. This regime change could, among other things, lead to the creation of a national Bitcoin reserve, which would drive up the price of the cryptocurrency by making it even more scarce on the open market.
I could go on and bore you to death 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 giant in the long run.
It may sound strange given Bitcoin’s long history of wild price swings and ongoing volatility, but digital gold is emerging as a solid asset. 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 cryptocurrency history, but it will take a massive turnaround 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 have a little bit of both. Still, Bitcoin’s future price trends will make a much bigger difference to my nest egg than Solana ever could.
And that’s how I like it. Your success may vary, but Bitcoin seems to me to be the stronger investment idea.
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Different Bylund has positions in Bitcoin and Solana. The Motley Fool has positions in and recommends Bitcoin and Solana. The Motley Fool has one Disclosure Policy.
