While most investors consider competition to be something that's relevant for companies, it's relevant for cryptocurrencies, too, even leaders like Solana (CRYPTO: SOL) and the second-largest cryptocurrency, Ethereum (CRYPTO: ETH). In fact, the rivalry between these two chains is heating up -- and there's a clear winner so far.
And that has implications for how investors should be thinking about buying both of these coins, even with a relatively modest sum of $1,500. Here are a couple of options for how to invest based on the dynamic between this pair, and how it might be changing in the future.
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Money is flowing from one chain to the other
If you want your investment to gain in value, you'll need to select the asset that other investors will want to buy both at its present price, and in the future at a higher price. In that vein, one of the ways that cryptocurrency prices are determined is (in part) by the value of the U.S. dollars held on the blockchain in the form of stablecoins. Stablecoins are a good way to anchor a chain's value, because they're directly interchangeable with liquid fiat currency.
As of late January, Solana had nearly $11 billion in stablecoins held on its chain. Its total market cap is $94.9 billion, taking in to account the value of all the projects in its ecosystem besides stablecoins.
And for the month of January, Solana reported stablecoin inflows of $5.3 billion, whereas Ethereum reported inflows of $4.3 billion despite it having a vastly larger market cap of nearly $326 billion. That makes Ethereum look incredibly weak; despite its dramatically larger size, there were fewer inflows of new money onto its blockchain.
Note that this is a distinct issue to the question of how much money investors with traditional financial accounts have invested in exchange-traded funds (ETFs) holding Ether or Solana, as those ETFs live in the stock market, not the blockchains that comprise the actual cryptocurrency market and which require specialized software to interact with directly.
Here's what the prices of these two coins have been doing over the last 30 days:
Solana Price data by YCharts
As you can see, the basics of a narrative are playing out here.
Investors are migrating their funds held on the Ethereum blockchain to the Solana blockchain. That's causing the price of Solana to rise precisely while the price of Ethereum is falling, which makes sense because there's a smaller quantity of stablecoins flowing into Ethereum -- and not enough to prop up the main coin's value when investors are selling it to recoup their capital and invest it in Solana.
Let's zoom out. If this phenomenon were just a blip, it would make sense if the two coins were performing comparably over a longer period, when the investment thesis for both would have time to play out. But it isn't just a blip.
Over the last three years, Solana's price is up by 105%, whereas Ethereum's is down by 11%. Complaints about Ethereum's slow transaction times and high gas fees have been going on for years, and it looks like people who have participated in the chain's ecosystem all along are finally getting fed up enough to migrate elsewhere. It looks like Solana is winning this competition decisively because it's faster and cheaper to use, not to mention having most of the same features and a rapidly growing ecosystem of projects.
Today's loser might be tomorrow's winner
Investors faced with the above information can use it to their advantage in a couple of ways.
The first way is to simply buy and hold Solana for a few years to capture the ongoing migration of capital from Ethereum to Solana's chain. Barring any major changes to the Ethereum protocol, or major technology upgrades, it makes sense to bet that its ongoing issues will continue to be problematic. Likewise, with adoption of Solana in full swing and further opportunities beckoning, such as the rollout of AI agent infrastructure projects, the chain's future is quite bright.
An investment of $1,500 is more than enough to get decent upside out of this trend, assuming it continues.
The other approach would be to buy Ethereum, acknowledging that this downturn is likely temporary, although it could persist for several more years. And, with new leadership filtering into the Ethereum Foundation, its nonprofit governance group, it is likely that the coin's price will not continue to fall for too much longer before significant changes start to be planned and then later announced.
But, taking this approach is the much riskier play right now, as it's betting on an aging giant to reinvent itself rather than betting on Solana, the up-and-coming star that has a lot of momentum.
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Alex Carchidi has positions in Solana and Ethereum. The Motley Fool has positions in and recommends Solana and Ethereum. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
