Cardano Is a Rising Altcoin Star, but the Payoff May Be Years Away

Cardano (CCC:ADA-USD) is up more than six-fold since December. Is it on its way to becoming a major cryptocurrency? Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD) continue to rule as the largest cryptos out there. While it’s going to take time, this altcoin has a shot at joining those ranks.

a 3d rendering of the Cardano Coin (ADA) cryptocurrency

Source: Immersion Imagery via Shutterstock

With regard to its utility, Cardano shows many strengths. Like some other altcoins out there, this one operates on a system that beats Bitcoin in both speed and efficiency.

Also, similar to another altcoin rising star, Stellar Lumens (CCC:XLM-USD), it could become a valuable tool for improving financial transactions in the developing world.

It may take several years for this cryptocurrency to catch on, but institutional inflows may start coming its way once it gains critical mass. Just as the entrance of the “smart money” into BTC and ETH has given them a further boost, the same could happen here with ADA.

Of course, as is the case for cryptos in general, while there’s big opportunity here, there’s big risk as well. This alternative asset class remains strong. Yet, it’s still too early to tell whether this is a megatrend in its initial stages, or if another “crypto crash” (like the one we saw in 2018) is just over the horizon.

So, with the jury still out whether Cardano is just getting warmed up, tread carefully (as with all cryptos). If you want to “get in early” on a crypto, you may want to keep this one at the top of your watch list.

The Utility of Cardano Could Fuel Further Gains

Unlike some other altcoins, ADA is more than just a vehicle for speculators to gamble on rising crypto prices. It’s also not at risk of being held back by its status as a meme, as Dogecoin (CCC:DOGE-USD) is.

InvestorPlace Markets Analyst Thomas Yeung broke it down like this: There’s substance behind Cardano’s increasing popularity.

First, its strengths relative to Bitcoin. Unlike the popular crypto (which uses the proof of stake method), this crypto uses the proof of work method for its mining. What’s the difference? It all comes down to the criteria for selecting the winning miner” (the one that receives the transaction fees).

Proof of work chooses the “winner” based on who has the most computing power. Proof of stake selects a winner at random, based on the percentage of coins held by the miner. This method not only requires less energy use (a big concern with Bitcoin as of late) but could be more secure as well.

Second, Cardano is yet another crypto that could disrupt financial services in the developing world. This is similar to Stellar Lumens, except that while Stellar is mostly focused on improving international remittances, Cardano’s platform could revolutionize everyday financial transactions in developing economies throughout the globe.

It’s still carving out its niche, but there’s much to justify the ADA bull case. As it gains more widespread use, institutional inflows could follow.

It’ll Be Years Before Wall Street Buys In

It took a decade for the “smart money” to embrace Bitcoin. It took several years for the same to happen with Ethereum. Crypto’s becoming an accepted asset class, but don’t rush out and buy Cardano with the expectation it too will soon become a hot place for institutional money to allocate capital.

Rising ADA prices do not hinge entirely on Wall Street institutions pivoting toward it in a big way. Yet, it’ll need this kind of “social proof” in order to join the ranks of its better-known (and more valuable) peers.

I don’t see this happening in a matter of months. Cardano remains years away from being ready for prime time. This may disappoint some expecting this crypto (currently trading for around $1) to make another parabolic move in the short-term. The key here is to focus on the long-term.

Especially as there’s the risk of another “crypto crash.” Even as some sector observers have said “this time, it’s different,” we could see this market sell off in the near-term after its impressive run these past few months.

Tread Carefully, but Consider ADA a Possible Winner

Crypto market participants may be more focused on Cardano’s stunning rise as of late, but patience may be key to profit from it going forward. The technology behind it shows many advantages to the technology behind incumbent cryptocurrencies. With its eye on the developing world, it may be able to find its niche in the global financial system.

Until it gains legitimacy in the eyes of the “smart money,” we are still a long way away from it breaking out in the same way BTC and ETH have done. With the risk of another “crypto crash,” be careful, but consider ADA an altcoin that could deliver strong returns in the coming years.

On the date of publication, Thomas Niel held a long position in Bitcoin.

Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.

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