January was a rough month for virtually all asset classes, with the benchmark S&P 500 and technology-driven Nasdaq Composite enduring their worst corrections since 2020.
But it was an especially difficult month for cryptocurrency investors, who witnessed the aggregate value of digital currencies plummet from $2.26 trillion on Jan. 3 to (briefly) less than $1.5 trillion three weeks later. Even though volatility is common, wiping out a third of all cryptocurrency market value in 21 days certainly qualifies as a crash.
When it comes to stock market crashes and corrections, downside moves always beget opportunity for patient investors -- and the same may hold true in the cryptocurrency space. Even though downside catalysts remain, the following four cryptocurrencies have the potential to make investors richer following the January crash.
One well-known digital currency aiming to bounce back following a rough start to 2022 is Cardano (ADA -0.28%), a chief rival to the highly popular smart contract-driven Ethereum (ETH -0.05%) blockchain. Cardano's ADA token is down about 20% since the year began, as of late evening Jan. 29.
There look to be two factors that have investors excited about Cardano's long-term prospects. First, there's the Goguen update, which went live this past September. Goguen introduced smart contracts to Cardano's blockchain, thereby allowing more complex transactions to take place. Smart contracts being the protocols that verify, enforce, and facilitate an agreement between two parties. This upgrade lets Cardano's network support financial and nonfinancial applications, and could be the dangling carrot that encourages decentralized application (dApp) developers to choose Cardano.
Secondly, Cardano's blockchain offers the possibility of jaw-dropping scalability. Among the many future upgrades engineers plan to deploy is one called Hydra. With Hydra, transactions would be funneled off the main blockchain to staking pools known as Hydra Nodes. With these transactions removed from the main chain, the network could scale quickly without being bogged down. In theory, the number of transactions Cardano could handle per second would lap established payment processors like Visa.
Although there's no timetable for the Hydra upgrade, it has make-or-break potential for this popular digital currency.
A second cryptocurrency that's been pummeled from the January crash and looks to have a solid chance to turn things around and make investors richer is Algorand (ALGO 0.04%). ALGO coins are down almost 43% on a year-to-date basis.
The secret sauce to Algorand's long-term utility is a combination of network efficiency, interoperability, and its unique consensus mechanism. In terms of the former, Algorand was processing more than 1,100 transactions per second (TPS) in December, with a transactional finality of just under 4.4 seconds. In other words, transactions on its blockchain were being verified and settled in a little over four seconds. Compare that to a cross-border payment utilizing today's payment infrastructure that can take up to a week to verify and settle.
As I've previously pointed out, Algorand's focus on interoperability is a big selling point of this project. Since so many unique blockchain projects are in development, many are unlikely to work with each other. Algorand is determined to bridge these gaps so money, data, and files can be transferred using blockchain.
There's also Algorand's pure proof of stake (PPoS) consensus mechanism. With PPoS, users are chosen secretly and at random to vote on proposals and propose blocks. This method of selection ensures that small holders of ALGO tokens won't be able to purposely disrupt the network.
Though it's a bit rough around the edges, Solana (SOL 1.41%) is another cryptocurrency that can bounce back in a big way to make investors richer. Solana has cratered 45% since the year began.
One of the key goals of blockchain technology is the democratization of payments. Whereas access to traditional financial banking solutions is limited for a sizable portion of the world, especially in emerging markets, Solana's blockchain network is built for speed, scalability, and cost-efficiency.
For example, Visa claims to be capable of handling up 24,000 TPS with its payment-processing infrastructure. Comparatively, Solana's developers believe their predominantly payment-focused blockchain network is capable of 50,000 TPS. Even better, the average transaction fee on Solana is only around $0.00025. This means it would take about 4,000 transactions to rack up $1 in fees. Compare that to the average wire fee charged at a traditional bank for a single transaction.
Similar to Algorand, Solana's success is also dependent on its unique consensus mechanism, known as proof of history (PoH). Instead of validators having to talk to each other to determine the length of time that's passed between events, PoH creates a record of an event when it occurs. No back-and-forth between validators makes for a lightning-quick blockchain network.
Like Cardano, Avalanche is a direct competitor to Ethereum, thanks in part to its all-around network efficiency and compatibility. While it's not as fast as Solana claims to be, Avalanche is processing at more than 4,500 TPS, with a transactional finality of under two seconds. Compare that Bitcoin and Ethereum, which are capable of only 7 TPS and 14 TPS, respectively, and complete transactions in an average of 60 minutes and six minutes. The icing on the cake is Avalanche's transactions fees are almost always lower than the "Big Two" as well.
What could really put Avalanche on the map -- in case being a fringe top-10 cryptocurrency by market cap didn't already do that -- is its incorporation of the Ethereum Virtual Machine (EVM) on its blockchain. The EVM is the software used by developers to create dApps on Ethereum's network. Based on protocol revenue data from TokenTerminal.com, Ethereum is the clear choice (for now) of dApp developers. But when these developers realize they can get superior execution and scalability at a considerably lower transactional cost with Avalanche, they're liable to the make the switch.