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Solana May Look Hot Here, But Know You’re Buying Without a Net

If you saw the New York Times story about alternative cryptocurrencies that mentioned Solana (SOL-USD) millionaires, you either may have been tremendously encouraged or had an ominous feeling in your stomach. Personally, I think there ar…

If you saw the New York Times story about alternative cryptocurrencies that mentioned Solana (SOL-USD) millionaires, you either may have been tremendously encouraged or had an ominous feeling in your stomach. Personally, I think there are valid arguments for both viewpoints.

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Solana is finally getting the credit that its supporters will argue the blockchain network deserves.

While lay observers may recognize the most famous cryptos, something like SOL is really only known among true blockchain proponents.

Its claim to fame is that it can run various decentralized applications through a scalable, secure and rapid-fire architecture that also facilitates cheap transactions. Naturally, Solana has become a darling among blockchain developers who are being pushed out of more popular platforms as the result of escalating network fees.

As it turns out, prices of consumer goods aren’t the only things affected by inflation.

The crypto story has long been about recognition, respect and eventually adoption or integration. With the virtual currency sector commanding a total market capitalization of $1.97 trillion, it appears recognition and respect have arrived. Now, it’s time for adoption — and Solana is certainly geared for that purpose.

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However, the negative of all this attention is that it suggests that you’re lagging in a highly volatile market. To paraphrase Jordan Belfort in the film, The Wolf of Wall Street, once you read about in the Wall Street Journal, it’s already too late.

Similarly, once you read about in the New York Times, it’s already too late. Either way, it seems risky to follow others in a trade that has long been disseminated and broadcasted.

Solana Has Echoes of Tulip Mania

Inevitably, when people assess the mercurial rise of exotic cryptos like Solana, people turn to the Dutch tulip mania implosion of 1637 as a key reason to avoid virtual currencies. After all, history may not repeat exactly but it sure rhymes a lot.

However, as Smithsonian Magazine points out, the common narrative of people in the Netherlands rushing into tulip bulbs, only for the bottom to fall out and usher in a period of economic depression is not only exaggerated but false.

Instead, as historian Anne Goldgar discovered, “There weren’t that many people involved and the economic repercussions were pretty minor.”

So, comparing Solana or any other crypto to tulip mania is misleading, right? Well, maybe not.

Goldgar stated that demographic changes occurred in the Netherlands, eventually leading to a period of unprecedented exchanges of people, culture and ideas. From this mixture sprouted the desirability of particular tulip bulbs — and the rest is history.

I find this fascinating because per the Pew Research Center, only “16% of Americans say they have ever invested in, traded or used cryptocurrency.” In other words, asset classes don’t need mass involvement to spark severe valuation implosions.

The U.S. is going through its own demographic shifts, likewise sparking unprecedented exchanges of ideas. One of the central ideas, of course, is decentralized finance. From that, we get the crypto explosion and the evolution of next-generation blockchain architectures.

Part of the allure of the underlying tulip bulbs was their rarity. Demand was so intense that a “sailor who mistook a rare tulip bulb for an onion and ate it with his herring sandwich was charged with a felony and thrown in prison.”

But now, with more than 17,000 cryptos available, the sector lost its rarity angle.

Best to Stay on Alert

As you might expect, the aforementioned Times piece showcased the grand lifestyle that early crypto speculators now enjoy. Though not explicitly stated, one of the subtle underlying themes is that with boldness and a whole lot of luck, you too can become a crypto millionaire.

However, Goldgar argues that with the tulip bulb bubble bursting, it wasn’t so much about the extreme speculation that sparked the implosion but rather, traders reneging on each other:

“In this case it was very difficult to deal with the fact that almost all of your relationships are based on trust, and people said, ‘I don’t care that I said I’m going to buy this thing, I don’t want it anymore and I’m not going to pay for it.’ There was really no mechanism to make people pay because the courts were unwilling to get involved,” Goldgar says.

I think the last sentence above is what people should really pay attention to, whether you like Solana or any other altcoin. Decentralization necessarily means decentralization of morals and expectations. Thus, if mass-scale defaulting occurs, you have no recourse. A crypto crash may not cripple the economy, but it could easily break the unlucky.

InvestorPlace does not regularly publish commentary about cryptocurrencies that have a market capitalization less than $100 million or trade with volume less than $100,000 each day. That’s because these “penny cryptos” are frequently the playground for scam artists and market manipulators. When we do publish commentary on a low-volume crypto that may be affected by our commentary, we ask that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.

 Read More: How to Avoid Popular Cryptocurrency Scams

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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