It has been a difficult past few months for cryptocurrencies, as most of the major names have plunged from November highs. The crypto market as a whole has gone from about $3 trillion to its current level of roughly $1.7 trillion.
This largely mirrors the drop that growth stocks have experienced over this period, and it shows that crypto isn't a hedge against inflation, as Goldman Sachs analysts pointed out in a recent research note. "Mainstream adoption can be a double-edged sword: while it can raise valuations, it will also likely raise correlations with other financial market variables, reducing the diversification benefit of holding the asset class," the Goldman Sachs analysts wrote.
It also hasn't helped that federal regulators have been keeping a closer eye on cryptocurrencies. News outlets reported in late January that the Biden Administration will issue an executive order that charges federal agencies with assessing the risks and opportunities of crypto. This has not been officially announced by the White House yet, but news reports say it's likely coming this month. Also, the Federal Reserve recently released a discussion paper that analyzes the pros and cons of a potential U.S. central bank digital currency. What this all means we don't know yet, but these developments obviously bear watching.
So while there is some uncertainty and short-term volatility, and not just among crypto assets, it's important to take the long-term view of this rapidly growing asset class -- just as you would with any stock. One token in particular that looks like a good long-term performer is Avalanche (AVAX -3.42%).
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Fastest-growing blockchain
Avalanche is a blockchain network, which is a digital public ledger that records transactions. Like its rival Ethereum (ETH -0.87%), Avalanche is a blockchain network that is used to execute smart contracts, which are programs on the blockchain that self-execute when certain terms are met. They eliminate the need for an intermediary. They can be used to transfer funds, legal documents, game items, and digital assets through non-fungible tokens (NFTs), among other uses.
Smart contracts that execute without an intermediary are an example of decentralized finance, or DeFi. Furthermore, the smart contracts can be bundled in decentralized applications, or dApps.
Avalanche has had one of the fastest-growing blockchain networks since it launched in 2020. It is the fifth-largest smart contract platform, with a market cap of about $17 billion. One AVAX token, the native assets of Avalanche, trades for about $70, down from a high of $134 in November, and $113 since the start of the new year.
Some key differentiators
Avalanche allows users to build their own dApps, with most of them focused on finance. It has a few key advantages that make it stand out. The biggest is its speed: It is the fastest smart contract platform of its kind, able to handle 4,500 transactions per second (TPS), which is much more than the closest competitor, Polkadot (DOT -1.53%), which boasts 1,500 TPS. Ethereum, the largest smart contract platform, does only 14 TPS.
It is also fast in terms of transactional finality, which is the time it takes a transaction to be confirmed and settle on the blockchain. Avalanche's time to finality is about 2 seconds, compared to Polkadot at 60 seconds and Ethereum at about 6 minutes. This speed gives Avalanche more scalability than its competitors, meaning it has the capacity to process more transactions as the network grows.
In addition, Avalanche has lower costs than most of its competitors, as well as a higher safety threshold for its transactions.
While there is uncertainty given the regulatory environment, Avalanche is well positioned to navigate and thrive in the long run.
