Cryptocurrency valuations have seen some pronounced recovery lately, but the broader crypto market still remains deep in bear market territory -- and many leading tokens are down precipitously from previous highs. Cardano's (ADA 1.66%) ADA token is trading down roughly 87% from its peak. Meanwhile, Solana's (SOL 0.83%) SOL token is trading off roughly 90% from its high.
Which of these cryptocurrencies is the better buy for investors gearing up for crypto's next bull phase? Read on for a look at pros and cons of investing in each token and a decision on which crypto stands the best chance of delivering explosive gains from current pricing levels.
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Key characteristics of Cardano and Solana
Cardano and Solana each provide layer-1 blockchain services and have set up their respective tokens as the fundamental currency for transacting on the networks. To some extent, that puts both projects in competition with Ethereum, which also provides layer-1 blockchain services. It also means that adoption and utilization of Cardano's and Solana's respective networks will likely be a driving force in shaping each cryptocurrency's performance.
Thus far, Cardano's Ouroboros proof-of-stake system has proven to be highly secure. Offering top-tier security is of foundation-level importance when it comes to attracting projects and scaling user engagement in the blockchain space. Due to its network structure and heavy emphasis on security, building and running applications on Cardano will typically be slower compared to Solana, which uses a proof-of-history system. Cardano does offer relatively low transaction costs, but transaction costs on the Solana network will usually be even cheaper.
While Solana's speed and transaction-cost advantages potentially make its platform better for long-term scalability, those advantages become less significant if people aren't confident in the network's underlying security. Multiple projects on Solana have also suffered significant security breaches, and the network has seen outage periods when it was rendered inaccessible.
While Solana can provide faster transaction speeds and lower costs than Cardano in many instances, thus far, the Cardano network has proven to be more secure and reliable. Offering quick and inexpensive transactions is a desirable characteristic for a layer-1 blockchain network, but security and reliability are paramount.
Solana has other problems too
The implosion of controversial cryptocurrency exchange FTX and the fall from grace of its former CEO Sam Bankman-Fried have cast a shadow over Solana. Bankman-Fried had been a major backer of Solana. He purchased large positions in the token through his companies and built projects on its network through his Alameda Research organization. Some have alleged that Bankman-Fried and his companies made moves to artificially increase the price of the SOL token.
The connection to Sam Bankman-Fried and FTX has already caused some developers and projects to leave the Solana network. At this stage in the game, when attracting developers and building trust is likely very important to building the foundations of long-term success, a resulting lack of confidence could prove to be devastating.
Making matters worse, much of Solana's previous activity growth had been a result of it gaining favor as a go-to network for non-fungible token (NFT) projects and transactions. But with NFTs having fallen out of favor, network activity has slumped. Ultimately, I don't see the NFT market recovering any time in the near future, and the significance these projects held in terms of overall usage on the Solana network doesn't bode well for the SOL token's pricing trajectory.
Cardano looks like the better buy
Ultimately, I think that Cardano stands out as the much better buy for investors who are aiming to build positions in anticipation of the next crypto bull market. Cardano's security advantages are the main reason I expect it to be the better performer, but recent events and sentiment shifts surrounding the Solana network also factor into this conclusion.
Even more than equity valuations, crypto valuations are heavily sentiment-based, and Solana's connections to Sam Bankman-Fried and FTX represent a meaningful blemish that could also hurt the project's underlying fundamentals. The connection to the FTX scandal, whether tertiary or not, already appears to have caused some weakening in support for the Solana network.
It's highly likely that both tokens will continue to see their pricing action shaped by movements for the crypto market at large, but I think that Cardano's ADA token looks like the clear-cut better buy at today's prices.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.
