- Pay attention to Avalanche, Polygon, Enjin, and Cardano this year.
- With a changing economic climate, crypto might not produce the same gains as 2021.
Make sure these cryptos are on your watchlist this year.
This year is off to a rocky start for cryptocurrency investments. Many major cryptos soared to new all-time highs in November, but have since fallen by around 50% or more. The overall crypto market cap has fallen from almost $3 trillion in November to $1.7 trillion at the time of writing, according to CoinMarketCap data.
If you're looking for altcoins that might surge this year, it's worth bearing in mind that we may not see the same incredible 5,000% gains of 2021. We're now in a very different economic climate. For various reasons, investors are shying away from riskier assets like crypto and it isn't clear how long it will take for the market to recover.
Nonetheless, there are lots of altcoins out there with great long-term potential. Here are four to keep in mind.
1. Avalanche (AVAX)
Avalanche gained over 3,000% in 2021 and could continue to perform well in 2022. It's one of several smart contract cryptos that has been dubbed an "Ethereum killer" because of its low fees and fast processing speeds. Ethereum (ETH) was the first blockchain to introduce smart contracts -- tiny pieces of code that live on the blockchain and allow developers to build applications. However, Ethereum's high transaction fees and heavy network congestion have pushed people to seek alternatives.
Two key metrics for smart contract cryptos are the number of applications on each blockchain and total value locked, which is the amount of money that's deposited in applications on its ecosystem. There were 176 projects running on Avalanche at the time of writing. And, according to DeFi Llama, it has over $10 billion in total value locked. This puts it in fourth place, ahead of projects like Solana (SOL) and Fantom (FTM).
2. Polygon (MATIC)
Polygon is a layer 2 solutions aggregator for Ethereum. Rather than building a new blockchain as Avalanche did, layer 2s improve the performance of existing blockchains. Polygon pulls together various ways to make Ethereum faster and cheaper, without compromising security.
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Ethereum still hosts the lion's share of applications. It's in the process of an upgrade to solve the issues we touched on above, but this won't be complete until 2023. In the meantime, existing projects don't want the hassle of moving to a new blockchain. For them, Polygon is an appealing prospect. Several Ethereum projects are already using Polygon. These include the popular decentralized exchange Uniswap (UNI) and metaverse tokens Sandbox (SAND) and Decentraland (MANA).
There is a question of whether Polygon will still be useful when Ethereum finishes its upgrade. Ethereum's founder Vitalik Buterin has stressed the importance of layer 2 solutions,and they'll likely still have a role to play. Blockchain technology is changing all the time and layer 2s could help Ethereum to compete with any new kids that arrive on the block.
3. Enjin (ENJ)
Enjin is all about NFTs, and the NFT industry is booming. To give them their full name, non-fungible tokens are a type of digital certificate that is stored on the blockchain. They are changing the way we own digital items, including music, videos, in-game items, and collectibles.
Enjin's platform lets people create, store, and trade NFTs. It has an active community, reputable leadership, and several proven use cases. It partners with a number of companies in different sectors, from gaming and art to music and collectables.
READ MORE: Top NFT Marketplaces
The biggest risk for Enjin is the sustainability of the NFT sector. There were some surprising NFT sales worth millions of dollars in 2021, but many argue this can't continue. However, once the hype dies down, we'll likely see established companies and industries finding solid uses for this technology. Enjin is well positioned for the next chapter of the NFT story.
4. Cardano (ADA)
Cardano has become a bit of a polarizing force in the crypto world. This is somewhat surprising for a project that wants to use blockchain to make the world a better place. The main issue is that some investors are frustrated by Cardano's slow-and-steady approach to development. It peer reviews and tests each step before acting on it. As a result, it only released its all important smart contract functionality last September.
People had very high expectations of its smart contracts, which were not met: Cardano couldn't immediately compete with other blockchains like Solana and Avalanche. Price-wise, Cardano has struggled to recover. However, there are now over 100 projects in development on Cardano, and 2022 could be a crucial year for this unusual cryptocurrency. Plus, it is one of the few cryptos to have projects and partnerships in the real world. This is a key strength and could help if the industry as a whole continues to suffer prolonged lows.
Crypto investors are often on the lookout for the next big altcoin. But it's an unpredictable industry that's rife with scams and poorly thought-out projects. Buying smaller, less-established cryptocurrencies carries a lot more risk, especially during a crypto crash. Some may produce astronomical short-term returns, but many will fail completely.
Rather than hunting for small coins that might surge in the short term, try to invest with a long-term perspective. Look for solid cryptocurrencies that people will want to use, as these are more likely to help you build wealth over time. The four coins above have strong potential to perform well in 2022 and beyond -- and they're available from most top cryptocurrency exchanges.
All cryptocurrency investments carry risk. For example, a blockchain network might encounter unexpected technical difficulties or security issues. Or increased regulation could put the brakes on the entire industry. As a result, it's wise to only invest money you can afford to lose and ensure that crypto only makes up a small proportion of your overall portfolio.
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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Emma Newbery owns Avalanche, Solana, Polygon, Sandbox, Decentraland, Enjin, and Cardano.
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