Is Solana Still Worth Buying in a Bear Market?

When conditions change, your strategy might need to change, too. On that note, if there's a bear market, does it make sense to buy a volatile asset like Solana, (CRYPTO: SOL) even if its fundamentals are as sound as ever?

There's an argument in favor and an argument against here, so let's take a look at both.

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The two ways to interpret the facts

Demand for Solana is driven by, broadly speaking, two types of projects that are hosted on its ecosystem. The first set are in a variety of segments, like decentralized finance (DeFi) and artificial intelligence agents, among others with real-world uses. The other set are unserious projects like meme coins.

In a bear market, investors will experience constraints on their capital. That makes them more hesitant to invest in both serious and less-serious projects on Solana's chain. One reasonable line of thinking is that the less serious the project, the more likely it is to be disfavored when financial and economic conditions are tougher. Therefore it is probable that meme coins will see a sharp slowdown compared to their recent speculation-driven heights. And that could easily lead to lower Solana prices, as less investment will mean less value stored on its chain.

In the long term, the coin could still recover if that happens. So the bear market would be a buying opportunity. Still, investors could be waiting for a very long time for money to flow back to the chain if during the hard times there isn't enough liquidity to keep the DeFi ecosystem alive. It probably wouldn't be an existential threat to the chain itself, but it would be a problem that could stretch for at least a couple of years.

How big of a problem might that be? Let's look at some data.

Of the top 10 projects on Solana by 24-hour revenue generated as of mid-afternoon on April 7, four are core components of the meme coin casino on the chain. One, Phantom, is a wallet that is popular among meme coin traders, bringing in $816,260. The other is Pump.fun, a platform for trading nano-cap meme tokens that are too small to be listed on the cryptocurrency exchanges, which brought in $784,896 in the same period.

Those two are the chain's second- and third-largest projects by revenue. That means that together, they're bigger in terms of the revenue they bring in than the largest serious project, Jupiter, which is an exchange as well as a token, meaning that it's a DeFi project. The rest of the ecosystem of revenue-bearing projects on Solana are almost exclusively in DeFi as well, rather than being meme coins.

So a DeFi drought caused by a lack of capital during a bear market would be a pretty big issue for investors in the medium term. That would be enough reason not to buy Solana. Furthermore, the strong influence of the meme coin sector is undeniable, which presents a somewhat sunnier view when interpreted a bit differently.

In contrast to the school of thought proposed above regarding inflows to DeFi, it's possible to interpret this information about revenue to argue that Solana will hold up well in a bear market, even if it's hit by a sharp economic recession. After all, gambling is an industry that has a reputation for staying strong regardless of economic conditions. Even if it isn't ideal for the chain to rely on revenue from meme coin casinos and adjacent services, it might be enough to sustain it. And under this view, it makes total sense to buy Solana in a bear market.

Tread very carefully if you decide to dabble

Which of the two perspectives presented here makes the most sense?

There are elements of truth to both. But it's clear that for investors with a risk tolerance that wasn't ironclad during calmer times, there's absolutely no way to suggest that they should be buying Solana right now. The coin could potentially lose more than half of its value if the market keeps tumbling.

The same goes for those who have a shorter-term investment horizon. Buying during a bear market could mean waiting years for a recovery that might not happen.

For those who are both willing to take significant financial risks and hold onto their position for a long time for their thesis to play out, however, Solana is very much still worth buying, albeit in a measured way. Meme coins aren't going anywhere. Decentralized finance might go into hibernation if conditions get really poor, but it won't be going extinct. Segments like artificial intelligence agents and infrastructure will still find that Solana is the fastest and cheapest place to operate.

Just avoid buying too much at any given price level until conditions improve; small purchases over time are the better approach.

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