Ethereum (ETH 0.15%) may be down 69% for the year, but its rivals are getting crushed even harder. Layer 1 blockchain networks such as Avalanche, Fantom, and Solana (SOL -1.45%) are all down 90% or more year to date. In fact, they are among the worst-performing cryptos in the entire market.
This dramatic fall has been eye-opening. During the last crypto bull market rally, each of these cryptos was heralded as a potential "Ethereum killer." But that was before The Merge, and the market seems to be making a strong point: Nobody needs "another Ethereum" these days. So are any of these Ethereum rivals still worth buying?
Market consolidation
The big picture here is that there will likely be tremendous market consolidation in the aftermath of The Merge. Before The Merge, there was a need for faster, cheaper blockchain networks that could do everything Ethereum could do. After The Merge, there is no longer this need. It's almost impossible to out-Ethereum Ethereum these days, especially with the popularity of Layer 2 scaling solutions that help address any remaining weaknesses. The end result? The market will likely have exceedingly high expectations for any Layer 1 blockchain network that claims it can become "the next Ethereum."
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This is not to say that the Layer 1 blockchain space is winner-take-all. The big question is what the market structure of the Layer 1 blockchain space is going to look like after the crypto winter is over. If you think about blockchain networks like mobile phone networks, then there could be a situation where a few big players predominate. Just as most people use one of a handful of nationwide mobile network providers, and no provider has a real monopoly on the market, the same could be the situation in the Layer 1 blockchain space.
That type of market structure might create an opening for Avalanche, Fantom, Solana, or any other Layer 1. They just need to do something different than Ethereum, which already offers smart contracts, decentralized finance (DeFi), non-fungible tokens (NFTs), and blockchain gaming. Being faster or cheaper is no longer enough. So what can they do that Ethereum can't?
Can Solana really challenge Ethereum?
From this perspective, I think Solana is the only one of these Ethereum challengers that is worth investing in now. For example, Solana is the only Layer 1 with a mobile crypto strategy. In early 2023, Solana plans to launch a "crypto phone" that will make it much easier to interact with crypto via mobile. This could completely change the way people think about mobile apps, crypto wallets, and Web3.
Secondly, Solana is arguably the only one of the major Layer 1 blockchain networks that has invested in a consumer-facing brand. In late summer, Solana opened the first ever crypto retail store in Manhattan. It followed this up with another crypto retail store in Miami in October. Solana doesn't refer to these as retail stores, however. Instead, it likes to refer to them as "embassies," since they are places for normal, everyday crypto enthusiasts to hang out for hours on end.
That is not to say that investing in Solana does not come with a lot of risk and volatility. Thanks to its now widely publicized relationship with Sam Bankman-Fried, FTX, and Alameda Research, Solana is coming under the microscope. In hindsight, it's now easy to see why Solana has been able to expand so aggressively. That being said, Solana points out that it still has 30 months of runway until all the money runs out, so there's no need to panic just yet.
Time to buy Ethereum
Right now, if you are thinking about investing in the Layer 1 blockchain space, the safest option is just to invest in Ethereum. With Ethereum, you are investing in the acknowledged market leader. Ethereum has the largest group of blockchain developers in the world, and it still boasts a greater than 50% market share of all blockchain activity taking place these days. In contrast, rivals such as Avalanche and Fantom control just a very tiny slice.
At one time, there was tremendous market demand for "Ethereum-killers," but it now looks like Ethereum won. At a time of maximum market uncertainty and risk, it's time to invest in winners, not losers.
