Should You (or Anyone) Buy Avalanche (AVAX)?

Avalanche says it finalizes transactions faster than any other blockchain. 

Avalanche (AVAX) is one of many Ethereum (ETH) alternatives that captured attention last year as investors and developers looked for faster, lower-fee blockchain ecosystems. So far, 2022 has been a different story -- Avalanche is down almost 90% from its all-time high and will likely continue to struggle in this bear market.

Avalanche basics

What sets Avalanche apart from other smart contract cryptos is something called speed to finality. In a similar way to how debit card transactions might be listed as pending on your bank account, it can take time for blockchain transactions to be completely finalized. 

According to its website, "Avalanche is the fastest smart contracts platform in the blockchain industry, as measured by time-to-finality." This is the point at which transactions can't be reversed, making it particularly attractive for decentralized finance applications. 

• What it does: AVAX is the native token for the Avalanche platform.
• Management team: The company behind Avalanche is Ava Labs, whose CEO is Emin Gün Sirer. Sirer is a Cornell University professor with significant crypto knowledge. 
• Date launched: September 2020
• Market cap: Around $4.6 billion (CoinMarketCap, June 14, 2022).
• Availability: Most major U.S. cryptocurrency exchanges.

Should you buy?

If you're considering buying Avalanche today, there are a few factors to take into account. Many of them are more connected to the broader economic climate as Avalanche's specific credentials, but they still matter.

1. Crypto prices could fall further

The cryptocurrency market is struggling right now. Some analysts believe the end may be in sight, but the ongoing macro economic conditions suggest this is overly optimistic. Investors need to be prepared for possible further downward price action.

There's a concern that the Federal Reserve's attempts to bring spiraling costs of living under control could trigger a recession. Even if we avoid a recession, higher interest rates and other economic tightening measures mean there's simply less money sloshing around. The entire crypto industry, including Avalanche, will continue to struggle in this risk averse environment.

2. Avalanche's long-term potential

Avalanche is a solid project with a good management team. Interestingly, it stands out in terms of total value locked (TVL) -- the amount of money on its platform. According to DeFi Llama, Avalanche is in fourth place in terms of TVL, ahead of say, Solana (SOL), which has a bigger market capitalization. 

Avalanche has completed several successful fundraising rounds and has some big-name backers. Like several of its competitors, it's invested heavily in adoption and development through incentive programs and it has some strong projects in its ecosystem. It's a proof-of-stake crypto that has three blockchains running under the hood. It argues that this allows it to offer low cost, speedy transactions without sacrificing security.

It's certainly in the race to become one of the lead smart contract platforms. The challenge is that there are many players jostling for position and any of them could get hit by a security breach or as yet unknown technical issue. They could get overtaken by a crypto we haven't even heard of yet.

3. Uncertainty around decentralized finance

The collapse of Terra and subsequent issues with Celsius have raised concerns about various DeFi platforms. The promise of taking the middleman out of traditional bankings has been a big driver in people's enthusiasm for crypto. But there are downsides -- such as the lack of investor protection and experimental nature of some of the projects. 

One of the jewels in the Avalanche crown is a decentralized exchange called Trader Joe (JOE). Trader Joe is attempting to find new, more sustainable ways to reward investors for staking its token. But it is early days and the platform could suffer because of growing investor skepticism and any new regulation around the DeFi industry. 

4. Your financial situation

In recent months, there's been a lot of talk of buying the dip -- picking up strong cryptos at a discount during the crypto crash. This can make sense, but only if you think the project can perform well in the coming 10 to 20 years and if you have your other financial bases covered.

Before you buy crypto, make sure you're on top of your emergency savings so you have a financial cushion against unexpected crises such as a job loss or medical issue. If you're paying down debt or are behind with your retirement savings, these need to take priority over any crypto purchases. No matter how solid a crypto project seems, undermining your financial foundations to buy a high-risk asset can damage your ability to build wealth.

Bottom line

It's never been more important for investors to think long term and research, research, and then research some more. If we are entering a crypto winter, there's a chance that only the very best projects will survive -- and the challenge for investors is identifying them. Avalanche has a lot going for it, but there are no guarantees and only you know your risk tolerance and financial situation.