The real upside? The price of Solana has set a new record on Ethereum

Solana (SOL) is starting to catch the attention of Ethereum (ETH) as a serious competitor, even though its market capitalization is four times smaller than that of the main smart contracts platform.

On October 23, the SOL/ETH trading pair rose to a new high of around 0.0692 ETH. The move is part of a bull run that has seen it rally 600% since 2023.

The rise of Solana on Ethereum has sparked discussions about its potential to change Ethereum's market capitalization in the not-too-distant future.

At the center of this bleak Solana view is the rise of network usage and upcoming updates that could diminish Ethereum's dominance in the blockchain space.

Solana DEX rate is close to Ethereum.

One of the key drivers of Solana's recent rise appears to be the explosion of decentralized exchange (DEX) usage on the platform.

For example, Solana's daily DEX trading volume (gray) has shown consistent growth since August 2023, with a clear acceleration beginning in early 2024. It occasionally matches or exceeds Ethereum DEX volume (green) during peak periods.

Ethereum continues to dominate DX trading volume, with average daily trading volume significantly higher than most Tier-1 competitors, including Solana.

Still, Solana's continued increase shows growing demand for traders on the network, reflecting a shift in user behavior towards Solana-based DEX platforms.

The low transaction fees and fast transaction speeds on Solana make it an attractive destination for launching new tokens, many of which fall into the memecoin category.

The majority of Solana DX users have seen activity related to memecoin 2024 (the gray bar on the chart below), which has exploded in volume in recent weeks.

The “WIF and BONK sector” (orange) representing popular memecoin projects also shows that these projects are a big part of Solana's recent surge in activity.

“ETH may never really reach its peak again,” argues analyst Jack.

“SOL is actually doing what I never thought possible: replacing the entire network and taking all of its users.”

Related: Ethereum ICO Participant Drops 3,000 ETH for $7.6M in Cash

Can SOL really “override” ETH?

The possibility of a “flip” where Solana surpasses Ethereum in terms of both technical capability and market valuation may increase, especially since memecoins have been a significant driver of Solana's recent growth.

Historically, memecoins have thrived in high market conditions when speculations were high, but experienced severe corrections during market downturns.

Today, Solana needs to grow 3.5 times its current market capitalization to reach Ethereum's $304 billion valuation. However, VanEck analysts estimate that if Solana continues to outperform Ethereum in terms of daily active users and transaction volume, ETH's value could reach 50% in the coming years.

Meanwhile, Bitfinex analysts point out that Solana's success depends on expanding its user base beyond speculative traders. To achieve long-term sustainable growth, Solana must attract DeFi enthusiasts, traditional financial institutions and enterprises.

He pointed out that an upgrade to FireDancer in 2025 to increase Solana's capacity to handle up to 1 million transactions per second could make the network more attractive to large investors and institutions.

Excerpts from their Bitfinex report:

“If Solana can get a big advantage on this [Firedancer] Growth, ‘spinning', where Solana surpasses Ethereum in market value, may be more than a speculative theory.

Related: Solana has 100M active wallets, but most of them are empty.

Technicals hint at a major pullback in 2025

Solana's technicals, however, seem extremely overvalued compared to Ethereum, suggesting a high possibility of a correction ahead.

At least three indicators are leaning bearish, including the overbought weekly Relative Strength Index (RSI), bearish divergence and the potential for a rising wedge breakout.

The weekly RSI for the SOL/ETH pair is around 70, indicating that it is entering overbought territory. Meanwhile, the gap between the rising SOL/ETH price and the falling RSI is growing, weakening the price advance.

Finally, Solana's price is breaking out in a gradually rising wedge, a depression characterized by converging trend lines. A breakdown of this structure could lead to a major decline, with potential targets around Fibonacci retracement lows.

If a crash occurs, SOL/ETH could drop to the 0.0357-0.0436 ETH range in early 2025. This target could be reduced by 40-50% from the current level.

This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.