Is This Upcoming Solana Catalyst a Reason to Buy $5,000 of It, or to Sell It All?

Sometimes it isn't clear whether a catalyst will be have a positive or negative impact on an asset's price, either in the short term or the long term. For holders of Solana (CRYPTO: SOL), this is a particularly concerning conundrum, as in early March there will be a key event which could send prices soaring, or send them right into the ground.

Let's analyze what's going to happen and whether it's a worthy buying opportunity with $5,000, -- which could get you a few dozen tokens -- or whether it's a sign you should dump your tokens and move on.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

There may be a lot of selling pressure coming very soon

In cryptocurrencies that are launched using a pool of capital from a group of early investors, it's normal for those investors to have their portion of the total outstanding supply locked and unavailable for selling for periods as long as years. Then, over a vesting schedule, their tokens are unlocked and they can be transferred or sold. Given that such early investors typically have disproportionately large holdings, it's a common fear in the cryptocurrency sector that supply unlocks are equivalent to one of the four horsemen of the apocalypse.

At the start of March, Solana will experience an unlocking of 11.2 million SOL, which is roughly equivalent to $1.6 billion if it were to all be liquidated instantly today. However, rather than being associated with the tokens held by early investors in the chain, these unlocks are associated with the dissolving of the FTX exchange, which collapsed due to fraud in late 2022. Investors will be getting their formerly trapped funds back as part of the bankruptcy proceedings.

In terms of the size of the unlock coming up, it's equivalent to about 2.3% of the total outstanding Solana supply. There is no guarantee that investors will immediately sell all of the tokens they get. Nor is there a guarantee that they will prefer to hold onto them. The only certainty is that there will be some volatility for a time.

Perhaps the biggest problem is that cryptocurrency investors are, on average, very bearish about the possibility of these supply unlocks. That's part of the reason why Solana's price is down by 44% in the last 30 days.

Buying the dip could be a good move

Before deciding how to plan for whatever happens next, let's think about how these supply unlocks factor into the investment thesis for Solana.

Do new tokens becoming saleable detract from the idea that it's a cheap and fast chain to transact on, especially compared to other large chains like Ethereum? No. There aren't any technical factors being affected here.

Do they contradict the chain's status as the home for cryptocurrency projects in decentralized finance (DeFi), artificial intelligence, meme coin investing, or any of its other segments? No. In fact it is extremely likely that some of the freshly unlocked tokens will be invested into those projects on the chain.

And will the unlocks prevent the chain from continuing to gain in volume and market cap over time because the core value-generating mechanisms are degrading? Obviously not. The overall quantity of tokens outstanding isn't changing here.

Finally, is it still possible that the token will be included in future exchange-traded funds (ETFs), or a national cryptocurrency repository in the U.S., should one be launched? Yes to both. Potential positive catalysts that are upcoming won't be disrupted by this event in the slightest.

So, given the above, if the unlocks cause Solana's price to plummet, there isn't much reason to suspect that the lower prices will be permanent. Therefore, it would make sense to back up the truck and buy the dip with $5,000, if you can bring that amount of capital to bear and believe in Solana's promise. Selling when times are temporarily tough is a surefire way to lower your returns.

Of course, you will probably need to hold onto any new SOL you purchase for a while before your investment breaks even, as the token may have further to fall if sentiment continues to be poor in the near term. Just keep your focus on whether the chain's merits still hold up. Assuming they do, it will continue to be a smart long-term investment.

Should you invest $1,000 in Solana right now?

Before you buy stock in Solana, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Solana wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $765,576!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of February 28, 2025

Alex Carchidi has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum and Solana. The Motley Fool has a disclosure policy.