What’s Driving the Current Solana Price? Key Factors to Watch

Solana is enjoying a moment of popularity for the same reasons as its bigger cousin, Ethereum. Similar to Ethereum, Solana is a programmable blockchain platform that can support independently developed, decentralized applications (dApps) and smart contracts. It also supports multiple tokens, from its native SOL coin to popular small altcoins like memecoins, including some less-than-lucrative coins. However, both successful and failed memecoins point to the strength of the Solana platform and its ability to support quick launches of crypto tokens and dApps.

The current Solana price is rising. At the time this article was written, SOL was at $142.61, up from a low of $117.49 on March 10 but still down from its 30-day high of $178.73 on March 2.

Solana is a relatively new player in the crypto market, founded in 2017 and run by the Solana Foundation in Geneva — though the blockchain platform itself was designed in San Francisco by Solana Labs. Solana has drawn a lot of attention because of its speed; it processes transactions much faster and with lower transaction fees than its larger peers.

Solana can process 24,000 transactions per second (TPS), compared with Ethereum’s 15 TPS, and the average transaction fee is $0.00026, compared to Ethereum’s average transaction cost of $0.30. These two factors have created high demand among memecoin and dApp developers, in addition to traders and investors. If you’re intrigued by Solana and debating whether to buy, sell, or hold, you aren’t alone.

Today, though Solana is priced much lower per coin than Ether, it is one of the largest crypto tokens by market cap. The SOL token grew 12,000 percent in 2021, briefly reaching a market capitalization of more than $75 billion. Its current market cap is just under $73 billion.

Buying SOL is easy; understanding what causes its price to rise and fall is a bit more complex. Supply and demand are the obvious factors. The best way to measure demand for Solana is to monitor trends in staking.

Like Ethereum, Solana uses staking as a consensus mechanism. Investors in the platform can “stake” a specific amount of SOL Coin, which the blockchain platform holds as collateral. Those with staked cryptocurrency then become validators, passively earning a percentage of the amount they have staked.

When coins are staked, they are temporarily removed from circulation. Even though Solana doesn’t have a fixed cap like Bitcoin, if many investors stake many coins quickly, this will create scarcity. As the supply drops (assuming demand is high), the price rises.

What you want to watch is the staking ratio – the percentage of the total coins available that are staked – and the reward rate, which is how much validators are earning on their stake within a 365-day period. Right now, Solana has over 64 percent of its coins staked, and the average reward for Solana validators who have held the coin for one year is 5.26 percent. This is down from 30 days ago, when Solana’s reward rate was higher, at 6.67 percent. That means that Solana staking has gone down over the past month.

Notice that this coincides with the March dip in Solana price. By monitoring the staking ratio and reward rate, not just the price itself, you can see when the unstaked supply of the coin is expanding (lowering the price) or contracting (raising the price).

In addition to factors internal to the blockchain and its performance, including speed, platform scalability, staking, and growing demand for NFTs and smart contracts, larger regulatory and economic factors also impact the market. The overall crypto market has tended to be more bullish over the past few months due to promises of a cryptocurrency reserve, but if reserves at either the national or state levels don’t materialize, this may have an opposite effect on Solana and other crypto prices.

On the macroeconomic level, it’s important to understand that cryptocurrencies function both like risk assets and like hedges. Because cryptocurrencies are relatively unregulated risk assets, their fluctuation often correlates with that of other risk assets, like high-profile tech stocks. As long as investment in AI continues to fuel investment in tech stocks, you can expect a corresponding bullishness with crypto, but if investment in tech stocks slows down, demand for crypto might, as well.

On the other hand, crypto isn’t just a risk asset; investors also treat cryptocurrencies as a hedge against a weak dollar. If the dollar loses strength, investors will reroute more of their funds to alternative digital currencies — for the same reason that they buy up gold in a weak economy. Larger currencies like Bitcoin, Ethereum, and Solana stand to benefit the most at such times because they are more well-known and trusted by traders.

What surprises will the next 30 days – and the rest of the year – hold for Solana? Cryptocurrency is notoriously volatile and unpredictable, and a few of the external factors to watch include the strength of the U.S. dollar, the performance of major tech stocks, whether or not a national cryptocurrency reserve is established, and how many states reject proposals for state crypto reserves. Factors specific to Solana, like the staking ratio and the reward rate, can also give more specific insights into how supply and demand for SOL coin are shifting.

As Solana continues to develop its ecosystem, attracting more dApp developers and institutional interest, its long-term outlook remains favorable even as it suffers short-term volatility. For active traders and long-term investors alike, staying informed through expert analysis, historical data, and reliable tracking tools will be critical for handling Solana’s fluctuating valuation. With its speed, scalability, and growing adoption, Solana is well-positioned to be a major player in the future of DeFi.