Finding top crypto growth prospects requires identifying projects with unique utilities that fill market gaps while maintaining key value drivers like scarcity and security. This is no easy task because most cryptocurrencies are little more than glorified Ponzi schemes with artificial value based solely on speculation.
It would be easy to surmise that Bitcoin and Ethereum offer investors the most practical choices to capitalize on future growth of the cryptocurrency market. While this may be true, and both likely deserve spots in your portfolio, our goal is to find the next diamond in the rough that could offer even more potential.
When taking this approach, one cryptocurrency that stands out from the rest is Stacks (STX -1.75%).
Image source: Getty Images.
Novel utility
The absence of smart contract functionality on Bitcoin led novel cryptocurrency use cases such as decentralized finance (DeFi) and non-fungible tokens (NFTs) to play out on other blockchains. But that looks to be changing.
Known as a Layer-2 solution, Stacks takes a unique approach by enabling smart contracts on the Bitcoin network without sacrificing any of its high levels of decentralization or security. This allows developers to build applications like lending protocols, decentralized exchanges, payment solutions, and much more that are compatible with the Bitcoin blockchain.
Not only does Stacks expand Bitcoin's use cases beyond just a store of value, it also helps to address the scalability issues that can plague Bitcoin's network. Stacks does this by processing transactions in bundles and then adding them to the Bitcoin blockchain in one transaction. This is not only more cost-effective, but also increases transaction capacity.
Stacks' tokenomics
Stacks' value proposition goes beyond smart contract functionality and scaling features. With its limited supply of coins, Stacks replicates the scarcity that propelled Bitcoin to become the world's most valuable cryptocurrency.
Around 76% of the total supply of Stacks coins is currently in circulation. Stacks employs a similar monetary policy to Bitcoin, in which the block reward, the primary means of the coin's creation, is cut in half roughly every four years. This diminishing growth rate will likely benefit Stacks' price as the supply becomes less diluted with time, especially if demand for the coin picks up.
Evolving Bitcoin use cases
Bitcoin has long been perceived as only a store of value, but this narrative seems to be evolving. Earlier this year, a breakthrough in technology occurred that allowed the creation of Bitcoin-based NFTs. Known as Ordinals, this protocol let users transcribe arbitrary data such as pictures, video, audio, or text to individual satoshis, the smallest denomination of a Bitcoin. Demand for Ordinals surged, catapulting Bitcoin to become one of the top NFT platforms of 2023, a feat unimaginable just a year ago.
With clear demand for Bitcoin beyond just as a store of value, the introduction of Ordinals led to unprecedented traffic and network congestion since transactions take place directly on Bitcoin. As a result, fees skyrocketed and speeds took a hit.
The more cost-effective and efficient alternative would be to use Stacks to mint NFTs. In doing so, fees would be kept in check, speeds would remain stable, and users could still benefit from Bitcoin-based NFTs as transactions would eventually reach finality on a Bitcoin block.
Moving forward
Highlighted by the demand for Ordinals, Stacks is positioned to benefit from the evolving perception of Bitcoin as more than just a store of value. As this momentum continues, Stacks could emerge as a key player in leveraging Bitcoin's latent capital to participate in various use cases previously out of reach.
With a goal to reach 3% of Bitcoin's market cap, Stacks has lofty ambitions -- but there is plenty of reason to believe this is possible thanks to continued progress, increased demand, and novel utility. To reach 3% of the Bitcoin market cap -- about $18 billion based on recent Bitcoin prices -- Stacks will need to increase by more than 18-fold. If this were to occur it would lead to a price per coin of more than $11, a far cry from its current $0.69.
Despite considerable development remaining, Stacks is on pace to revolutionize the world's most valuable cryptocurrency. The journey will likely take time, but over the long term Stacks might prove to be the diamond in the rough that investors seek.
