Algorand (CCC:ALGO-USD) is a very popular DeFi (decentralized finance) cryptocurrency that has had a very rough past three months. Algorand peaked on Nov. 11 at $2.34, but by Jan. 6, the cryptocurrency had drifted down to $1.55.
That represents a decline of 33.8%, or over one-third, in the space of fewer than 2 months. That is a pretty severe tumble.
However, I suspect that a huge portion of the drop in the past 2 months emanated from trading related to tax-loss harvesting. But now that this is over, ALGO has a good chance of rebounding.
Where Things Stand With Algorand
Algorand calls itself “the future of finance” on its website. It believes it will power the “convergence” between traditional finance and DeFi. Many DeFi apps today provide the functions that banks do, such as lending and borrowing currency. They do this through the use of smart contracts and blockchain software.
Algorand recently announced the launch of the Algorand Virtual Machine, or AVM, a layer-1 protocol upgrade. This will allow the Algorand blockchain to be useful to developers and organizations to develop DeFi smart contracts. That doesn’t necessarily mean that developers will instantly adopt Algorand as their go-to smart contract platform, though.
Recently, a company called Glitter Finance made a breakthrough in this arena with Algorand. It was able to integrate Algorand’s DeFi ecosystem with Solana (CCC:SOL-USD). This probably led to the social media prognostications saying Algorand will be the next Solana.
Glitter Finance will integrate Algorand blockchain elements with Solana to allow crypto owners to anonymously move their assets. This will keep their crypto transactions private when moving from one blockchain site or wallet to another. Normally all blockchain transactions are public knowledge through the validation process.
This will become essential for Web3 businesses to thrive. Web3 is known as the next iteration of the web, using the decentralized features of distributed ledger technology (DLT), or blockchain.
Prospects for Algorand DLT
Algorand is well off of its former highs as I have shown. But now there is a good chance that its prospects will become better understood.
For example, El Salvador’s adoption of Bitcoin (CCC:BTC-USD) as legal tender using the Algorand infrastructure technology will highlight its capabilities.
Investors can see Algorand put to the test on a large scale in a small nation. For all intents and purposes, this will be a test tube for Algorand’s capabilities to handle large numbers of transactions at an efficient speed.
If Algorand’s infrastructure blockchain is a success for El Salvador, other countries and companies could follow up adapting Algorand and its DLT technology.
If that happens, ALGO will take off. It could indeed become the next Solana.
Where This Leaves Algorand
Right now Algorand has a market capitalization of just $9.9 billion, whereas Solana has a market value of $46.9 billion. Let’s say that Algorand ends up with just 50% of the market value of Solana, or $23.5 billion. That is substantially lower than Solana but still much higher than its present situation.
This implies that ALGO is worth somewhere around $3.60 per token or higher, or over 2.3 times its present price of $1.55. For most investors, making more than 130% is a great return.
For example, let’s say that it takes up to 2 years for this to happen. As a result, the compound average annual return works out to more than 50% over both of the next two years. For most investors, making an annual return greater than 50% each year over two years is a pretty good ROI.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance at mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide, which you can review here.