Crypto

Should you (or anyone) buy Avalanche (AVAX)?

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Avalanche says that it completes transactions faster than any other blockchain.


Key points

  • Avalanche is trading almost 90% below its all-time high.
  • Avalanche has three blockchains under the hood and says it is the fastest in terms of time to completion, the point at which transactions cannot be reversed.
  • The decision to buy crypto depends on both your personal financial situation and crypto credentials.

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

Avalanche Basics

What sets Avalanche apart from other smart contract cryptocurrencies is something called speed to finality. Similar to how debit card transactions can appear as pending in your bank account, it can take time for blockchain transactions to fully finalize.

According to its website, “Avalanche is the fastest smart contract platform in the blockchain industry as measured by time to completion.” This is the point at which transactions cannot be reversed, making it particularly attractive for decentralized finance applications.

  • What are you doing: 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 professor at Cornell University with significant knowledge of cryptography.
  • Release date: september 2020
  • Market cap: Around $4.6 billion (CoinMarketCap, June 14, 2022).
  • Availability: Most major US cryptocurrency exchanges

Should you buy?

If you’re considering buying Avalanche today, there are a few factors to consider. Many of them are more connected to the broader economic climate than Avalanche’s specific credentials, but they are still important.

1. Cryptocurrency prices could fall further

The cryptocurrency market is struggling right now. Some analysts believe the end may be in sight, but current macroeconomic conditions suggest this is too optimistic. Investors should be prepared for potential downward price action.

There is concern that the Federal Reserve’s attempts to rein in rising costs of living could trigger a recession. Even if we avoid a recession, higher interest rates and other economic adjustment measures mean that there is simply less money circulating. The entire crypto industry, including Avalanche, will continue to struggle in this risk-averse environment.

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2. The long-term potential of Avalanche

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 ranks fourth in terms of TVL, ahead of, for example, Solana (SOL), which has a higher market capitalization.

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

It is certainly in the running to become one of the leading smart contract platforms. The challenge is that there are many players competing for a position and any one of them could be affected by a security breach or an unknown technical problem. They could be outclassed by a crypto we haven’t 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 to cut out the middleman from traditional banking has been a big driver of people’s enthusiasm for cryptocurrencies. But there are drawbacks, such as a lack of investor protection and the experimental nature of some of the projects.

One of the crown jewels of Avalanche is a decentralized exchange called Trader Joe (JOE). Trader Joe is trying to find new and more sustainable ways to reward investors for staking their token. But it is early days and the platform could suffer due to growing investor skepticism and any new regulations surrounding the DeFi industry.

4. Your financial situation

In recent months, there has been a lot of talk about buying the dip, i.e. getting strong cryptocurrencies at a discount during the cryptocurrency crash. This may make sense, but only if you think the project can do well in the next 10-20 years and you have your other financial bases covered.

Before you buy crypto, make sure you’re aware of your emergency savings to have a financial cushion against unexpected crises, like a job loss or medical issue. If you are paying down debt or behind on your retirement savings, these should take precedence over any cryptocurrency purchases. No matter how solid a crypto project seems, undermining its financial foundation to buy a high-risk asset can hurt its ability to build wealth.

Bottom line

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

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