It's safe to say that 2022 was one of the worst years in recent memory for the crypto market. Terms like "crypto winter" and "financial contagion" went mainstream, and every month seemed to bring a new scandal or controversy, finally capping off with the spectacular collapse of cryptocurrency exchange FTX in November. So, it was no surprise that many cryptocurrencies were down 80% or more for the year.
But it's an entirely different story in 2023. Many top cryptocurrencies are rising from the ashes and rallying spectacularly. Two that particularly stand out are Solana (SOL 1.30%) and Avalanche (AVAX 2.05%). Both of these cryptos are still trading at substantial discounts to their all-time highs, making them potential screaming deals.
Solana
If there's one cryptocurrency that's most closely associated with the collapse of FTX, it's Solana. The founder and former CEO of FTX, Sam Bankman-Fried, was an early VC backer and was known for using social media to promote Solana. Moreover, affiliates linked to Bankman-Fried and FTX (including hedge fund Alameda Research) had substantial positions in Solana and other crypto tokens in the Solana ecosystem (often referred to as "Sam coins").
But after the criminal trial of Bankman-Fried this fall, it looks like the smoke has finally cleared from the burning ashes of FTX. And that means Solana has once again emerged as an attractive investment opportunity. Solana is up 536% for the year and now trades for $63. Even with this spectacular rally, however, Solana is still 75% below its all-time high of $260.
CRYPTO: SOL
Key Data Points
So, what's behind this unexpected recovery? One major factor is the market perception of Solana being the next big thing in the blockchain world. For the past two years, Solana has been touted as a potential "Ethereum killer" due to its high speeds, low costs, and efficiency. As Cathie Wood of Ark Invest recently explained on CNBC, Solana is a faster and more cost-effective version of Ethereum.
Image source: Getty Images.
Right now, however, Ethereum is nearly 10 times more valuable than Solana, as measured by market capitalization. From my perspective, this gap should be much narrower, especially when you take into account all the areas where Solana has already surpassed Ethereum. This spring, for example, Solana unveiled the next major step in its mobile crypto strategy: the Saga "crypto phone" fully optimized for the Solana blockchain. And then, in September, Solana announced a new payment partnership with Visa (V +0.24%) featuring stablecoins.
Avalanche
The other crypto to watch is Avalanche. Over the past 30 days, Avalanche is up 100%. For the year, Avalanche is now up 140% and trades right around $25. But even that elevated price is a huge 82% discount from where it was trading at just two years ago.
CRYPTO: AVAX
Key Data Points
Like Solana, Avalanche is a potential "Ethereum killer." Its superior speed and transaction processing ability make it a natural fit for areas such as decentralized finance (DeFi), blockchain gaming, and Web3.
In addition to speed and efficiency, there's one other valuable feature of Avalanche that often goes overlooked: the ability to create separate blockchain ecosystems (known as "subnets") within Avalanche, each with its own proprietary rules. This unique blockchain architecture -- which Ethereum does not have -- makes Avalanche an intriguing option for corporations looking to experiment with blockchain technology.
Recognizing this, Amazon (AMZN 0.73%) partnered with Avalanche in January via its Amazon Web Services (AWS) unit to offer blockchain-related services to enterprise and government clients. The idea is simple but powerful -- sell blockchain-related services the same way you sell cloud computing-related services. If it works out, this could be exactly the type of long-term partnership that puts Avalanche on a path to future success.
The trade-off between risk and reward
Just remember -- with any asset, there's always a trade-off between risk and reward. In most cases, the higher the reward, the higher the risk. Thus, before deciding to invest in either Solana or Avalanche, make sure you know the risks involved. Yes, these cryptos appear to be remarkably undervalued, but there's always the risk that things might not go as planned. That's especially true with crypto, where market volatility and regulatory uncertainty are major risks.
That being said, I feel comfortable investing in Solana and Avalanche for the long haul. From my perspective, both are cheaper, faster, and better versions of Ethereum and, as such, are worthy of higher valuations. While there is obviously risk involved, the long-term growth prospects for both are simply too good to pass up.
