Solana price is dropping and reversing recent gains amid recent research claiming that SOL might be overvalued.
SOL was trading at $169 at the time of writing after a 7.1% dip in 24 hours. The recent drop is a reversal from last month’s gains that saw SOL outperform most of the biggest cryptos and even briefly flip BNB to emerge as the fourth-largest crypto by market cap.
Last month’s rally led to speculations that Solana was finally living up to its nickname as an Ethereum killer. ZyCrypto reported the Solana layer 1 blockchain surpassed Ethereum in total transaction fees for the first time in history.
However, according to Flip Research, an in-depth look into SOL and the Solana network invalidates the bullish thesis around the coin.
Is SOL Overvalued?
In an X post, Flip Research raised concerns about the significantly large number of daily active users (DAUs) on the Solana blockchain compared to rivals like Ethereum and Arbitrum.
The research stated that Solana had nearly 100 times more daily transactions per user than Ethereum, which is attributed to many rug pull projects and fake volumes on the chain.
Flip Research further mentioned the hype around Solana-based meme coins. For instance, several celebrities, including Andrew Tate and Iggy Azalea, used the Solana blockchain to launch meme coins, which have lost significant value.
The research stated that retail traders investing in Solana meme coins have lost millions of dollars, as these tokens have no material backing. However, the “current mania” around these tokens has driven up volumes, which could explain the high usage of the Solana blockchain.
“I believe that SOL is overvalued from a fundamental perspective, and while existing sentiment + momentum may well drive price increases in the short term, the longer term picture is far more uncertain,” it added.
Solana Community Responds
The research attracted criticism from the Solana community. The CEO of Helius Labs, Mert Mumtaz, came to Solana’s defense, saying meme coins were not the sole driver of Solana’s increasing usage.
Mert mentioned the other projects launching on the blockchain, including NFT marketplaces, aggregators, wallets, and payment mechanisms.
“Solana isn’t good because of memecoins, Solana is good because it’s where people go to build usable apps in crypto, memecoins are one of them, they are not the only one. Your problem seems to be with crypto’s use cases rather than a chain,” Mert said.
