I may believe Algorand (CCC:ALGO-USD) is an altcoin rising star to keep an eye on. It has the technology to compete with Ethereum (CCC:ETH-USD) and its so-called crypto killers like Cardano (CCC:ADA-USD).
Despite only launching two years ago, Algorand made big progress finding institutional backing. It’s also found success finding third-parties interested in using its platform.
But as long as uncertainty looms over the cryptocurrency market? It may remain hard for its native crypto, ALGO-USD, to rise above the $1 price level again much less get back to the $1.50-plus it traded for when the early 2021 crypto bubble was in full swing.
Major cryptos like Bitcoin (CCC:BTC-USD) and Ethereum continue to drift lower. Upgrades coming online a few months from now may be enough to get the digital asset market out if its current rut. Yet, I wouldn’t say this is set in stone.
It’s still hard to tell whether crypto is a bubble in the midst of popping. Or if it’s more than a speculative vehicle, with a paradigm shift still in motion. In time, the answer will become more clear.
For now? As things could go either way, your best move may be to tread carefully in space. Cryptocurrencies could continue to pull back in the short term, including strong contenders like this one.
Algorand Is on Its Way
Algorand is not yet in the Ethereum killer category, but it definitely has the potential to do so. When it comes to meeting the criteria for altcoins that could give the current DeFi (decentralized finance) leader a run for its money, this one checks many of the boxes.
I’m talking about fast transaction speeds, smart contract capabilities and its possible appeal to decentralized application (dApp) developers. Put these factors together and in theory there’s no reason why this lesser-known blockchain can’t join the ranks of names like Cardano and Polygon (CCC:MATIC-USD).
“In theory” though remains the key idea. It may have the technology and it’s moving quickly. But given its rivals have already done much to establish themselves, they may be able to crowd it out. This points to the risk of Algorand, despite its strengths, failing to become a major platform in the blockchain/DeFi economy.
That’s not the only issue at hand. The crypto market continues to melt down. There may be much pointing to blockchain/DeFi being more than a passing fad. Yet for now, the risk that crypto is a near-term craze, or worse, the 21st century’s answer to the 17th century Dutch tulip bubble, remains on the table.
Further Declines Appear Likely
Whether you’re buying Bitcoin, Ethereum or one of the emerging altcoins, you are making a binary bet. That is, either this asset class is going to continue to soar in value as investors lose faith in fiat currencies, or these digital assets continue to fall in value if there fails to be a paradigm shift from centralized (traditional) finance over to DeFi.
It may be short-sided to declare that the new paradigm thesis is fading. Even those who have gone from bullish to bearish on crypto and have evoked the Dutch tulip bubble comparison, like Guggenheim’s Scott Minerd, still believe digital currencies are the future of finance.
But whether the paradigm shift is still on or not, sentiment could continue to worsen. You can buy Algorand now to make the wager that if DeFi gains critical mass and this blockchain becomes one of the main platforms out there, its price will rise well above what it trades for today (around 76 cents).
Yet, with factors like possible increased regulation and the outbreak of Covid-19’s Delta variant, along with eroding faith among speculators in a rapid crypto recovery, prices could continue to plunge before they begin to resume heading higher once again.
It’s a High-Risk Bet
In the coming months, Algorand may be able to attract further investment and usage. Yet, if crypto markets overall remain challenged, it’s going to be hard for ALGO-USD to again rise in value.
The paradigm shift narrative for crypto may still hold. But with new uncertainties adding to the existing ones, cryptocurrencies could face further declines in the near-future.
If you’re looking at Algorand as something that could skyrocket over the next few years, splitting hairs over entry price may not matter. Yet, with a good chance it moves lower before it moves higher, a slow ease into it may be best.
On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.