The Three Cryptocurrencies You Should Consider Backing In 2022

The Three Cryptocurrencies You Should Consider Backing In 2022
Stéphane Renevier, CFA

about 2 years ago5 mins

  • Bitcoin is a high-quality, blue-chip way to bet on crypto and store value

  • Ethereum could be a great complement – it benefits from the growth of the overall crypto ecosystem

  • Avalanche is a high-risk, high-reward investment that has the potential to replace Ethereum

Bitcoin is a high-quality, blue-chip way to bet on crypto and store value

Ethereum could be a great complement – it benefits from the growth of the overall crypto ecosystem

Avalanche is a high-risk, high-reward investment that has the potential to replace Ethereum

2021 saw crypto grow more popular than ever. And with the new year on the horizon, now’s a good time to optimize your crypto investments. You have a number of options, but these three tokens – bitcoin, ether, and avalanche – each present a unique opportunity. So here are the risks and rewards you’re looking at by investing in each one.

Bitcoin: The King

First, there is simply no better store of value. Bitcoin is self-sustaining, simple, and secure, and it operates outside the reach of governments and big corporations. Plus, unlike the majority of its competitors, it’s been using the same framework since its inception in 2009. If you had to put money in one crypto and go to sleep for five years, bitcoin would – arguably – be your best bet.

Second, just because you can’t do all the cool stuff with bitcoin right now, doesn’t mean you’ll never be able to: the Lightning Network has already paved the way for cheaper and faster transactions, while the recent Taproot update allows for more complex smart contracts to be executed, opening the door to more innovative financial applications. Bitcoin is slowly but surely building a robust ecosystem that could soon become a real alternative for decentralized finance (DeFi) projects.

Third, bitcoin might be in a prime position to handle a challenging year for crypto. If 2021 was the year of 300x baggers, 2022 may well be a lot more pragmatic: a lot of projects will fail, overall sentiment could turn a lot less optimistic, and retail investors might have a lot less cash to play with should growth stocks lose value. If there’s one currency likely to weather a storm, it’s OG bitcoin: the crypto has already survived multiple bear markets and come back stronger each time.

Does that make bitcoin a risk-free bet? Of course not. While regulators might not be able to turn off the music completely, they can turn the volume down enough for people to start leaving the party. The fact that it's not exactly climate-friendly might also prove problematic – though that topic is a lot more complicated than it may seem.

Ethereum: The Prince

Bitcoin may be the best store of value, but Ethereum is something different: it’s the best global computing platform. Unlike bitcoin, Ethereum was built to do lots of things – like executing codes and running applications. In fact, it’s the world’s most important programmable blockchain. And through its ability to execute “smart contracts” – ones that are automatically carried out when specific conditions are met – Ethereum supports many other cryptocurrencies, as well as a massive ecosystem of decentralized applications (dApps), non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs).

Investing in ether is a bet on the growth of the whole crypto ecosystem: since Ethereum is the blockchain of choice for developers, ether should benefit from the hypergrowth of things like decentralized finance (DeFi) and the metaverse. The token is starting 2022 with rising adoption, declining supply, strong network effects, and a massive upgrade on the way. It’s been around for much longer than other altcoins, and its tried-and-tested technology continues to make it one of the most robust solutions. As long as Ethereum remains the go-to platform for developers, ether should continue to do well.

Of course, Ethereum isn’t perfect: its vast functionality makes it a lot more complex. The network has recently reached its limits in terms of scale – fees are prohibitively high and transactions can be slow. And while its widely anticipated update might solve a lot of those issues, the chance of unexpected problems is high. In the meantime, competition is boiling and many projects are competing to become an “Ethereum killer”.

Avalanche: The Fool

Avalanche is certainly one of the most serious threats to ether. Its odds of replacing the prince might remain low, but it took advantage of every opportunity this year to consolidate its position as a serious contender.

Avalanche can do even more than Ethereum: as well as allowing its users to build dApps, it also lets them deploy custom blockchains that fit their specific needs. Avalanche is powered by a unique and innovative consensus protocol that makes its network one of the fastest, cheapest, safest, and most flexible options available.

So why would you choose Avalanche over other platforms like Solana, Cardano, or Polkadot? Because its adoption rate and ability to close high-level deals is second to none. As more and more developers switch to Avalanche, its potential to gain greater market share and profit from network effects is huge. Avalanche is developing the right technology at the right time: if things line up perfectly, it could become one of 2022’s biggest crypto successes.

Avalanche’s high reward potential is not without high risk: its technology is new and hasn’t yet achieved the robustness of bitcoin or Ethereum. Plus, its novel consensus mechanism has its fair share of detractors, and its ownership base is highly concentrated. After the strong price gains achieved in 2021, a lot of good Avalanche news could already be baked into its price, and investors might have to stomach a significant drop when the network faces its next challenge.

What’s the opportunity here?

While bitcoin may not make you a millionaire overnight, it is a high-quality, blue-chip way to bet on crypto. It also, arguably, remains your best chance to hedge the unintended consequences of irresponsible monetary and fiscal policies – those that could lead to a sharp debasement of fiat currencies.

Ethereum is a different bet to bitcoin, and it could be a great complement to your crypto portfolio. Ethereum seems particularly well-placed to grow if crypto markets remain buoyant in 2022, and it remains the best way to benefit from the growth of the overall crypto ecosystem.

While a core portfolio of bitcoin and ethereum makes sense, I think adding “satellite” investments in high-risk, high-reward technology like Avalanche could be well worth your while.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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