Ethereum (ETH) and Solana (SOL), two of the most prominent cryptocurrencies, recently experienced a significant downturn, mirroring each other’s market performance. Since the market peaked in March, both ETH and SOL have faced a 34% decline, with this downward trend accelerating through September.
Parallel price movements amid market correction
Over the past month, Ethereum and Solana have moved in tandem, with both cryptocurrencies experiencing a substantial drop. Solana initially showed stronger gains on a year-to-date basis, only to face a steeper decline as the market corrected. Once expected to break into four-digit valuations, Solana saw its price return to a lower range, echoing the broader market sentiment.
Ethereum and Solana exhibit similar price patterns due to their involvement in decentralized exchanges (DEX), NFTs, memes, and DeFi projects. Despite these assets serving different ecosystems, they remain closely linked by market demand and investor sentiment.
Market Trends Impact ETH and SOL Alike
As the broader market witnessed a downward trend, Ethereum and Solana struggled to maintain their valuations. Ethereum’s price remained relatively flat, gradually losing ground against Bitcoin (BTC), while Solana also faced challenges, with its momentum stalling despite attempts to reignite interest. The overall market environment, coupled with a lack of a significant altcoin bull run in 2024, contributed to the struggles of these leading assets.
Solana’s price fell to $128.96, while Ethereum managed to hold the $2,300 level, though with bearish undertones. Analysts predict further declines for both assets, with Solana potentially dropping to as low as $90 and Ethereum dipping below $2,000. The recent price action has also affected the market dominance of both cryptocurrencies, with Solana at 3.11% and Ethereum at 14.2%.
User outflows and network performance
Even before the recent price declines, Ethereum and Solana saw a decrease in user activity. The number of daily active wallets began to drop in mid-August, reflecting a broader market downturn. For Solana, this period coincided with a decline in meme token activity, while Ethereum saw a shift in user activity towards Layer 2 protocols.
The decline in activity raised questions about which network could generate more value relative to its expenses. Solana, known for its high-speed transactions, continues to require significant incentives to sustain its network, with weekly costs exceeding $82 million. In contrast, Ethereum’s network incentives have decreased to $44.15 million, reflecting lower gas fees and reduced inflation.
Despite Solana’s higher incentives, its weekly revenue stood at $1.09 million, compared to Ethereum’s $6.14 million. This disparity highlights Ethereum’s efficiency in generating value, even as both networks face reduced user engagement. The inflationary pressures on Solana, with an annualized rate above 5%, further differentiate it from Ethereum, which has seen its inflation rate drop to 0.68%.
The recent downturn in Ethereum and Solana has reignited discussions about each network’s long-term prospects. Ethereum continues to dominate, with over $43 billion in total value locked, while Solana holds $4.6 billion. While offering higher potential returns, Solana’s volatile performance also underscores its risks compared to Ethereum’s more stable outlook.