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Make no mistake about it, Solana (SOL -3.23%) is ending the year with a bang. Up more than 900% in 2023, Solana recently passed XRP (XRP -1.03%) to become the fifth-most valuable cryptocurrency in the world. Solana now has a $43 billion market cap, and appears to be growing much faster than anyone could have predicted a year ago.

So just how much higher can Solana go? There's now a case to be made that Solana is on pace to pass Ethereum (ETH -0.36%) to become the second-most valuable cryptocurrency, trailing only Bitcoin (BTC -0.15%). That would represent a huge paradigm shift in the crypto world, given that Ethereum has historically played the role of "digital silver" to Bitcoin's "digital gold." Yet there are already signs that this paradigm shift is underway. Let's take a closer look.

The first evidence of this potential paradigm shift comes from the world of non-fungible tokens (NFTs), an area where Ethereum has traditionally dominated. The two most famous NFT collections -- the Bored Ape Yacht Club and the CryptoPunks -- are found on the Ethereum blockchain. Historically, they have been the most popular collections for NFT trading and have been reliable benchmarks for how the overall NFT market is performing.

Image source: Getty Images.

Yet they are no longer the market leaders. The last time I checked, a frog-themed NFT collection for the Solana blockchain had passed the Bored Ape Yacht Club in terms of 24-hour sales volume. And other Solana NFT collections are performing well over longer seven-day and 30-day windows. In fact, according to CryptoSlam data, Solana is nearly tied with Ethereum in terms of 30-day NFT sales volume.

Much the same story is true in the world of decentralized finance (DeFi), where Solana appears to be narrowing the gap. This is also an area where Ethereum has historically dominated. But at the end of December, Solana passed Ethereum in terms of DeFi for the first time ever.

Over both a seven-day and 24-hour period, decentralized exchanges on the Solana blockchain saw more trading volume than decentralized exchanges on the Ethereum blockchain. This is particularly striking, given that Solana has never made DeFi a core priority. Granted, much of this volume appears to be coming from the buying and selling of Solana meme coins, but it's still interesting to note.

Moreover, institutional investors appear to be lining up behind Solana as well. According to CoinShares, which tracks institutional money flows out of various cryptos, the pattern throughout 2023 has been the influx of new money into Solana. At the same time, these large institutional investors appear to be scaling back their exposure to Ethereum.

As a signal of this institutional buy-in, Cathie Wood of Ark Invest recently appeared on CNBC talking up the merits of Solana vis-a-vis Ethereum. Simply stated, Solana is a faster, more cost-effective version of Ethereum, and so it only makes sense that it should be gaining market share in key areas. Shouldn't the best technology win? If that's the case, then the valuation of Solana could soar.

Although Solana does appears to be gaining ground on Ethereum, a huge chasm in market cap still separates them. While Solana has a market cap of $43 billion, Ethereum has a market cap of more than $280 billion. For Solana to pass Ethereum in market cap, something extraordinary needs to happen, beyond just the capture of a few points of market share in the world of NFTs or DeFi.

And investment firm VanEck seems to have the answer. That "something extraordinary" is the launch of a killer app for the Solana blockchain that is capable of onboarding 100 million users. That number might sound preposterous, but keep in mind it only took ChatGPT two months to acquire that many users this year.

If Solana finds that killer app, says VanEck, its future price could skyrocket by more than 10,000%. Assuming that Solana continues to gain share at the expense of Ethereum in key market niches, VanEck projects that the price of Solana could approach $3,200 by 2030 compared with today's price of about $100.

If you multiply that price of $3,200 by Solana's current circulating coin supply of about 429 million, that gives you a figure of $1.4 trillion as a projected market cap. So a valuation of more than $1 trillion is certainly within grasp for Solana. That's the ultimate bull case scenario, of course, but it's still interesting to consider.

If you are thinking about investing in Solana, keep a close eye on metrics that show that Solana is indeed narrowing the gap with Ethereum. Tracking the sales numbers of digital frogs or digital apes might sound silly, but data like this could signal whether a real paradigm shift is underway. Several years from now, analysts might be talking about Solana as the next trillion-dollar asset.

Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.

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Forget XRP, This Unstoppable Crypto Is Now on Pace to Topple Ethereum and Become the Next Trillion-Dollar Asset - The Motley Fool