Bitcoin ( BTC 1.07% ) has taken over most of the cryptocurrency conversation for over a decade, and it is the largest cryptocurrency by market capitalization today by a wide margin. But smaller parts like Solana ( GROUND 1.59% ) are starting to eat away at that lead, and Solana’s 2021 gain of 10,970% has far exceeded Bitcoin’s 57.6% rise.
However, the competition between Bitcoin and Solana is not exactly for the same space in the crypto-economy. Bitcoin is increasingly seen as digital gold or a hedge against inflation. Solana is a cryptocurrency designed for low-cost, high-speed transactions, making it more of a utility coin. And these differences are why I think Solana will outperform Bitcoin again in 2022.
A change is already underway
We can get clues about where crypto traders’ money is coming from Coinbase ( CHANGE -7.46% ) trade volume statistics. Bitcoin accounted for 32% of total trading volume in Q3 2020, but fell to just 19% in Q3 2021. Ethereum (ETH 1.49% ) gained 4 percentage points in market share, from 18% to 22%, but other cryptocurrencies have gone from 50% of trading volume to 59% in the last year – among them Solana.
A similar story is forming with developers. It’s hard to define developer activity in the fast-paced world of crypto, but it’s safe to say that Solana’s developer community is thriving while Bitcoin’s is stagnating. In the past two months alone, Solana Ventures, the venture capital arm of Solana, announced $250 million in venture capital funds to create games. This is in addition to NFT marketplaces and funding projects, which are already hitting the market.
Here’s another indication of Solana’s growth. Phantom, which is a popular wallet on Solana that holds crypto, tokens, and NFTs, recently tweeted that it has grown to 1.8 million monthly active users.
1/4 — 2021 has been an incredible year for Phantom & the @solana ecosystem ! We opened our invite-only beta in March, then launched publicly in July.
In just 9 months, we’ve grown to over 1.8 million monthly active users with no signs of slowing down! pic.twitter.com/kY4tjBQuyv
— Ghost (@ghost) January 1, 2022
By any measure, Solana is booming, and its gains are coming at the expense of once-popular cryptocurrencies like Bitcoin.
What if Bitcoin was digital gold?
One argument in favor of Bitcoin is that it is digital gold – an asset that will always retain value just like physical gold. But if so, the advantage of utility tokens should be much greater than that of gold-like tokens, if the analogy to the physical world is any indication.
- The global market capitalization of gold is around $11 trillion, according to several estimates.
- US stocks alone are worth $49 trillion, according to Siblis Research, as of September 30, 2021.
- European listed companies are worth $8.1 trillion, according to Trading Economics.
- Global real estate is valued at $326.5 trillion, according to research firm Savills.
These are estimates, but they show that investors value companies that provide utility, growth and income more than they value gold in the real world. And that doesn’t include the value of small businesses. How do you translate this into the digital world?
I think the clear lesson is that utilitarian and physical land is more valuable than gold. It would therefore make sense that the utility of the crypto-economy would be worth more than the digital gold of crypto in the long run.
Solana has many advantages
Directly comparing the market capitalizations of Solana and Bitcoin is not entirely fair. Bitcoin’s value is primarily to those who hold it, while Solana is more like fiat currency, used as a medium of transaction for NFTs and other tokens. However, their market capitalization is the best proxy we have today, and a reasonable basis for comparison of these two cryptocurrencies.
Bitcoin has fallen from its valuation of over $1 trillion, but has a market cap of $870 billion as of this writing, while Solana’s market cap is $50.8 billion. If you believe the argument above that cryptocurrency and the digital economy will be about owning utilities and not just digital gold in the long run, then Solana should be one of the biggest winners. . This is why I believe it will overtake Bitcoin in 2022 and beyond.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.