Wealth is never built at the top of a market.
It’s always built when markets are down and high-quality assets are available at bargain prices.
Which is my way of saying that we are adding a new position to our Frontier Fortunes Portfolio: Solana.
Right now, an opportunity exists in Solana, one of the top 10 cryptocurrencies in the world.
SOL, as it’s called, is a competitor to Ethereum (ETH). Like ETH, it’s a “layer 1 blockchain,” meaning it’s the foundational layer on top of which other crypto projects are built.
Solana is one of the fastest-growing blockchains in the world, and the fastest-growing ecosystem in all of crypto. It already hosts thousands of projects ranging from other cryptocurrencies to decentralized finance (DeFi) applications.
In some ways, Solana is the Apple Computer of the blockchain world, in that it has a rabid fanbase similar to the cult of personality that grew up around Apple in its early days, and which still exists today.
I have seen firsthand how Solana has grown. I participate in various SOL-based DeFi projects, and I am active in the Solana NFT space. (NFTs are unique, one-of-a-kind cryptos that represent ownership of a digital asset. Learn more about NFTs in the two reports I’ve prepared as part of Frontier Fortunes: How to Invest in NFTs and The Frontier Fortunes Guide to NFT Wallets.)
I talk to Solana-based NFT developers and team members on a near daily basis. I know the bullishness they feel in building on this network.
Indeed, in terms of NFT volume, SOL is the #2 network in the world, trailing only Ethereum. The #3 player is about 90% smaller than SOL. In a show of just how popular the Solana NFT ecosystem has become, OpenSea, the leading marketplace for NFTs on the Ethereum network, recently began offering access to Solana NFTs as well.
Solana is a fast-growing destination for NFT sales for two key reasons: Transaction costs are fractions of a dollar and often less than a penny, and the network is fast…generally in the range of 1,800 to 2,500 transactions per second. In time, SOL has the capacity to scale up to as much as 50,000 transactions per second.
By comparison, Ethereum runs at about 15 to 17 transactions per second, and at a cost that regularly runs to tens or even hundreds of dollars per transaction. Of course, the speed and cost of Ethereum will improve massively, jumping to as many as 100,000 transactions per second, when the Ethereum 2.0 upgrade project is completed this fall.
But until then, SOL has the edge. And I’m confident its appeal will endure for years to come due to its fervent fanbase.
Because of the current cost difference, the SOL network is also the home of innovation in the NFT space—innovation that doesn’t happen on Ethereum at present because the transaction costs are far too high.
Innovation in NFTs often involves moving your assets around between various websites and wallets to claim rewards. On SOL, these transactions cost as little as $0.00026. On Ethereum, the same transactions would typically cost several dollars each.
This gives SOL a big edge.
Amid the market turmoil of late, SOL has tumbled along with crypto as a whole. From just above $250 last fall, Solana has fallen to the $50 range, which is a remarkably cheap price for this popular, highly regarded network token.
MY RECOMMENDATION: Buy Solana (SOL) at prices up to $60.
You will find SOL trading on Crypto.com, Coinbase, and Binance.US.
My expectation: We could see more weakness in the crypto market as the Federal Reserve raises interest rates further over the summer. SOL, as a result, might slip into the low-$40s, or even the mid-$30s. Short-term swings are difficult to gauge right now because of all the extraneous noise that swirls daily.
But I’m comfortable as a buyer under $60, knowing that such volatility is likely.
And longer term, meaning over the next few months and into next year, SOL will jump back well above $100 per token, where it has typically traded…and it will very likely move past its previous highs in the $250 range.
Note: before you buy crypto, always remember to never invest more than you can afford to lose. I recommend investing no more than 5% of your portfolio in crypto. See further down for more guidance.
Update on Terra
I also want to provide an update on what happened to Terra.
While we were able to put a sell recommendation in place to avoid a total loss, we took a very meaningful hit on Terra (LUNA) because the currency came under attack.
By all accounts, this was a premeditated attack on the two Terra tokens that, in tandem, were used in an algorithm that was supposed to make TerraUSD (UST) a stablecoin that maintained a 1:1 parity with the U.S. dollar.
Unlike U.S. Dollar Coin (USDC), which is backed by physical U.S. dollars or other equivalent, real-world assets, TerraUSD maintained its dollar peg through a complex algorithm centered on Terra’s second coin called LUNA.
This was a unique and innovative approach to building a stablecoin. And it was widely praised across the cryptoconomy.
But there are always dangers in experimental technologies like these and apparently, someone figured out how to game the algorithm to create a death spiral for LUNA.
The plan initially involved breaking UST’s dollar peg, which then created selling pressure on LUNA.
From there, it was a cascade of never-ending pressure on UST that put never-ending pressure on LUNA.
LUNA’s price collapsed in mere hours. And that sent shockwaves through the broader crypto community.
Billions of dollars simply vanished. For example, the owner of Binance, the world’s largest crypto exchange, says he had a stake in UST that was worth $1.6 billion but is now worth about $2,200.
That’s the magnitude of the collapse.
The Role of the Federal Reserve
The Terra crash came as the crypto market was already wringing its hands about the Federal Reserve.
The Fed spent most of 2021 lying to itself and the financial markets by insisting that inflation was transitory and would self-correct when post-pandemic supply-chain issues worked themselves out.
That was never going to happen.
As I began writing in early 2021, inflation was about to erupt, largely because of the vast sums of money the Fed, Congress, and central banks around the world had poured into the global economy in the wake of the pandemic.
Now, the Fed is frantically trying to play catchup and contain runaway inflation by hiking interest rates too much, too quickly.
These actions are engineering a recession—which we might already be in.
I suspect the Fed will start cutting rates this fall to deal with this recession (which is good news for risk assets).
However, right now all financial markets, from stocks and bonds to crypto, are impacted.
There are a few lessons to take away in this moment:
1. Never invest more than you can afford to lose in any asset, particularly crypto.
With crypto, in particular, keep your total investment at 5% or less of your overall portfolio.
The returns that are possible in crypto can turn tiny sums of money into large sums quickly. Even $100 or $200 can, literally, become thousands of dollars…but crypto can also fall precipitously.
As I noted to you in the inaugural Frontier Fortunes quarterly issue, “I expect a lot of volatility in asset price. This is crypto. It’s a new asset class. Prices can bounce around pretty violently at times.”
That’s why you should never put a ton of money to work in any one cryptocurrency and never invest more than you can afford to lose.
2. Think long term.
Do not fret that the crypto market is in panic mode at any given moment. Panic can turn to mania in the crypto space very easily, and a position that is down 50% can suddenly be up 100% or more.
What might cause the market to shift right now?
The Fed announcing that it’s going to cut rates and start buying bonds again in order to save the economy from recession.
Don’t discount that possibility—or what I would actually call a probability.
Raising rates into a slowing economy would be economic suicide. The Fed won’t do that. It will, instead, have to cut rates to stimulate growth again, likely after summer.
When that happens, investors will cheer, Wall Street will pop higher, and crypto will turn around and race to reclaim lost ground.
Bitcoin and Ethereum—the gold and silver of the cryptosphere—will again push toward (likely past) all-time highs, and the rest of the crypto space will tag along.
So, yes, this is a difficult moment. But it will pass.
The impact of the Terra crash on the wider crypto market will fade. The Fed will curtail its rate-hike program and revert to cutting rates and buying bonds. And the sun will shine once again on crypto.
P.S. Finally, a note of disclosure. I aim for 100% transparency with my readers; that is, you should know what I’m thinking, why I’m thinking it, and where my interests lie any time I make a recommendation. As a matter of general policy, I do not recommend assets in which I have a financial interest in (I prefer to invest in my relationship with you and maintain an objective eye). That said, I do own Solana. I have owned it for a long time and continue to buy it as it is necessary to trade NFTs. My commitment to you is that I will always give you ample time to act on any Solana recommendation before trading it myself.
