There are several cryptocurrencies that I think could be winners in the new year. Avalanche and Solana are definitely on the list. Kadena just might be a breakout success.
But if I had to choose only one digital coin to scoop up over the next few weeks, there's another one that stands out. Here's my top cryptocurrency to buy before 2022.
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Practically a blue chip pick
In some ways, investing in cryptocurrencies is like the wild west -- exciting yet dangerous. But amid the thousands of digital coins on the market, I think there's one that offers at least some level of stability plus solid growth opportunities.
Compared to most cryptocurrencies, Ethereum (ETH -4.69%) is practically a blue chip pick. Blue chip stocks are well known. They're leaders. And they've shown that they can stand the test of time. Ethereum isn't a stock, of course, but it checks off these boxes more than any cryptocurrency other than Bitcoin (BTC -3.83%). And I think Ethereum has better prospects than Bitcoin.
Ethereum ranks as the second-largest cryptocurrency by market cap (behind only Bitcoin). Since its launch in 2015, its native Ether token has skyrocketed more than 143,000%. That's more than three times Bitcoin's lifetime return.
The primary advantage of Ethereum is its support for smart contracts. It's not just a cryptocurrency; it's an ecosystem. Thousands of applications are built on the Ethereum blockchain. They include more than 40 of the 100 top cryptocurrencies based on market cap.
Good things are on the way
I think that Ethereum's momentum could pick up in 2022 for two main reasons. First, a major upgrade is on the way. Second, I expect many more apps will be built on the Ethereum platform that drive the price of the Ether token even higher.
Despite Ethereum's incredible success so far, its blockchain does have an Achilles' heel. Actually, it has two of them. Ethereum is slow, with a capability of processing only between 15 and 45 transactions per second. Its transaction fees are also high, so much so that some have left the platform for other blockchains.
However, significant progress on the Ethereum 2.0 upgrade should be made in 2022 and into 2023. This upgrade is expected to boost the processing speed to up to 100,000 transactions per second. It will also slash the transaction fees.
Billionaire Mark Cuban thinks that Ethereum could be a monster winner next year as important new apps are developed on the platform. I suspect that the Shark Tank star is right. Cuban is personally pushing for carbon offsets to be monetized on the blockchain. That does appear to be a great fit for Ethereum, particularly with the 2.0 upgrade coming.
Still risky
Regardless of the investment, it's wise to look at the potential downsides. Ethereum might be a relative blue chip compared to most cryptocurrencies, but it's still risky.
If the economy hits a rough patch, investors could turn to less volatile assets than cryptocurrencies. A major sell-off in cryptocurrencies would almost certainly pull Ethereum down in its wake.
Rival blockchains could hinder Ethereum's gains. For example, some have called Solana an "Ethereum killer" because of its faster processing and lower fees. Others think that the growing adoption of Cardano, Avalanche, or Polkadot could hurt Ethereum.
I think this scenario could be more likely if there are major delays with the Ethereum 2.0 upgrade or if the upgrade doesn't go well. That's a distinct possibility. The third phase of this upgrade was expected to occur in 2022 until a few days ago. Now, the timeline has been pushed back to "sometime in 2023."
My view, though, is that the prospects for big returns with Ethereum outweigh these risks. I expect that it will have another strong performance next year.
