Unless you bought it five years ago, it’s far too late to get in early with Ethereum (CCC:ETH-USD). Cardano (CCC:ADA-USD) is still an altcoin rising star with a lot of room to run. But at a $68.2 billion market capitalization, there’s a slim chance of it soaring another 20-fold. With lesser-known Algorand (CCC:ALGO-USD), however, there’s still time to buy before it really starts to take off.
With plenty working in its favor, it’s not hard to see this blockchain join the ranks of names like Cardano and Solana (CCC:SOL-USD). As you likely know, both vying to grab larger piece of the DeFi (decentralized finance) pie from Ethereum.
Granted, with big potential comes big risk. Assuming DeFi gains critical mass, there will be ultimate winners and ultimate losers. Only time will tell which category Algorand will find itself.
Along with this longer-term risk, there is a key near term-risk: market volatility. Uncertainty with stocks may again spill over into cryptos. If it does, expect names like this one to give up more of their recent comeback gains.
So, given its likely next direction, what’s your best move? Approach it only as a long-term play, not as a trade. Even then, tread carefully.
Algorand Could Be More Than an Also-Ran
With a leading Ethereum killer out there (Cardano), and scores other promising altcoin plays, why go with this also-ran? First off, Algorand may be much smaller, but I wouldn’t go as far to say that it’s an also-ran.
Despite only being in existence for two years, it’s managed to attract serious capital. Crypto funds have invested over $500 million to fund projects using its blockchain. Along with this, well-known investment firms are adding it to their crypto portfolios. For example, Anthony Scaramucci’s Skybridge Capital hedge fund has so far bought $700 million worth of Algorand tokens.
Second, it’s not just attracting investment capital. It’s gaining wider usage too. As you may have heard, Koibanx is using this platform to build El Salvador’s blockchain infrastructure. The Drone Racing League plans to use it for blockchain-enabled ticketing, and for collectibles like NFTs (non-fungible tokens).
Its AVM (Algorand virtual machine) upgrade, which enhances dApp (decentralized app) scalability, could attract new projects/further usage from developers. There’s now a crowded field of possible Ethereum killers. That said, it’s still too early to write Algorand off as an also-ran. That may prove to be the case down the road.
That’s why caution is key with this high-risk play. For now, though, it’s still an up-and-coming altcoin with tremendous potential.
Keep its High Risk in Mind
On one hand, I’m bullish that this blockchain can explode in usage in the coming year. In turn, this could send its native token to much higher prices. On the other hand, I’ll admit that it still has an uncertain path to the top of the heap.
Despite its attraction of capital, recent partnership deals, and AVM upgrade, Algorand’s more widely used rivals continue to level up. Ethereum’s recent updates could enable it to maintain its lead as the most widely used platform in DeFi. Cardano’s newly-enabled smart contract capabilities may allow it to both become the true Ethereum killer, while at the same time, keep possible Cardano killers like Algorand at bay.
What happens if it’s shut out from becoming one of the largest platforms? Don’t count it rising in value to that of Cardano, Solana, or any of the other altcoins worth many times what it trades for right now. On top of that, if Algorand winds up not becoming widely used, it will have a hard time maintaining its $9.5 billion market capitalization.
Along with this longer-term risk of it never making it to the top, is the risk cryptos experience another meltdown in the coming months. In September, events like China’s crypto ban, along with more general volatility in the financial markets, has taken the wind out of the crypto comeback that started up in late July. Further weakness with stocks could spill over again to this asset class.
Approach ALGO-USD as a Long-Term Play
With so much going for it, ALGO-USD still stands to see an eventual liftoff in price. However, that’s probably not happening in the near term. Chances are, further market volatility could keep it moving lower. At around $1.75 as of this writing, don’t be surprised if it makes its way back toward $1 in the coming weeks.
More a long-term play than a short-term trade, be careful with Algorand. Either slowly accumulate a position. Or, wait for another big drop before buying.
On the date of publication, Thomas Niel held a long position in 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.