Without a doubt, Bitcoin (BTC 0.48%) has been the standout crypto performer of 2023. Up more than 150% for the year, Bitcoin has completely reenergized the crypto market. With Bitcoin currently trading around $42,000, some investors are even speculating that Bitcoin could soar past the $100,000 mark next year.
But with all the excitement around Bitcoin, investors might be overlooking cryptocurrencies with the potential to outperform Bitcoin next year. Three potential standouts include Solana (SOL +0.13%), Avalanche (AVAX 0.76%), and Chainlink (LINK +1.27%). Let's take a closer look at why you might want to put these cryptos on your investment radar right now.
Solana and Avalanche
Both Solana and Avalanche are direct competitors to Ethereum (ETH +0.47%), the second-most valuable cryptocurrency. In crypto terminology, all three are Layer-1 blockchain networks. This simply means that they are the core base layer on which everything else is built in the blockchain world. That includes non-fungible tokens (NFTs), blockchain gaming, and Web3 apps.
If you compare the market caps of Solana and Avalanche to that of Ethereum, there's still a huge chasm. Ethereum is 8 times the size of Solana and 18 times the size of Avalanche. From my perspective, this gap should be much smaller.
CRYPTO: SOL
Key Data Points
And many other investors seem to agree. Avalanche is up a sizzling 270% this year and Solana is up a blistering 630%. With that kind of performance, they are starting to gain the attention of some high-profile institutional investors. For example, Cathie Wood of Ark Invest recently appeared on CNBC, making the case that Solana is a faster and more cost-effective version of Ethereum. The implication, of course, was that Solana might one day overtake Ethereum.
Image source: Getty Images.
The big question is whether the first-mover advantage of Ethereum is simply too insurmountable. Ethereum has seemingly been first to market with nearly every major blockchain innovation of the past five years, and that means Ethereum has a dominant position in just about every niche of the blockchain world. So keep your growth expectations for Solana and Avalanche in check.
Chainlink
Chainlink is the premier decentralized blockchain oracle in the world right now, and it's not even close. While Chainlink currently has a market cap of $8 billion, its nearest competitors have market caps measured in the hundreds of millions. For the year, Chainlink is up about 160%, and is now the 13th-most valuable cryptocurrency in the world.
CRYPTO: LINK
Key Data Points
As a blockchain oracle, Chainlink provides data to smart contracts, which are small pieces of self-executable computer code. These smart contracts form the basis of decentralized finance (DeFi), which is why the data provided by Chainlink is so valuable. When smart contracts can't find the data they need on the blockchain, they turn to Chainlink for "off-chain" data.
If you buy into the concept that data is the oil of the digital economy, then you can see why Chainlink is so valuable. What has me especially excited about Chainlink is the potential for an integration of artificial intelligence (AI) and blockchain technology. In May, Chainlink outlined some of the potential use cases. And then, at this year's Chainlink conference in October, former Google Chief Executive Officer Eric Schmidt (a strategic advisor to Chainlink) hosted a fireside chat with Chainlink founder Sergey Nazarov discussing the intersection of blockchain and AI.
The big caveat here, of course, is that Chainlink is not an AI company and it's unclear when (or if) there will ever be a formal integration of Chainlink with ChatGPT. So, as an investor, just be aware that you're not getting direct exposure to the AI market by investing in Chainlink.
Just how risky are these cryptos?
While all three of these cryptos have the potential to outperform Bitcoin next year, Bitcoin should probably continue to represent at least one-half of your total crypto portfolio. Given that Bitcoin currently represents one-half of the current value of the $1.6 trillion crypto market, this seems like a reasonable rule of thumb.
Moreover, keep in mind that the crypto market is still a volatile place to invest your money. All three of these cryptos are riskier than Bitcoin, and that means you should handle them with extreme care. That said, if you're willing to take on the extra risk, all three of these cryptos could outpace Bitcoin next year.
