Although Avalanche (CCC:AVAX-USD) is well off its highs from last year’s Q4, its prospects still look quite good. AVAX crypto hasn’t completely fallen out of bed like some other cryptocurrencies.
Although AVAX-USD is down from its peak price of $143.78 per token as of Nov. 22, to $109.99 as of early Jan. 4, this is a decline of just $33.79. That represents a decline of just 23.5%.
As a large cryptocurrency with a market cap of $26.6 billion, this is not that much on a relative basis. Keep in mind AVAX-USD is ranked as the 11th largest cryptocurrency by Coinmarketcap.com.
By contrast Polkadot (CCC:DOT-USD), the 10th largest crypto with a market value of $29.7 billion, has fallen from its peak of $55 per DOT-USD token on Nov. 4 to $30.08 on Jan. 4. That represents a 43.8% drop, nearly twice the damage AVAX-USD incurred.
In addition, Dogecoin (CCC:DOGE-USD), the 12th largest crypto has fallen more as well. For example, DOGE-USD crypto peaked at 33 cents on Oct. 28, but today it’s trading around 17.18 cents per token. That represents a 47.9% drop for DOGE-USD crypto or over twice the 23.5% drop of Avalanche. Dogecoin has a market cap of $22.8 billion, not that far from the $26.6 billion market cap at AVAX-USD crypto.
Obviously, the market is fairly sanguine about Avalanche’s prospects. In fact, it might be postulating that the year-end decline in Avalanche crypto might just have been due to market correlation factors, tax-loss harvesting.
In other words, now that the year-end “beta” forces are likely to decline, its “alpha” prospects are likely to shine. Let’s look into these positive factors for Avalanche.
Where Things Stand For Avalanche Crypto
Avalanche is an Ethereum (CCC:ETH-USD) competitor focused on delivering fast transaction speeds. Its advanced blockchain platform is designed to overcome issues that older cryptocurrencies have that inhibit their scaling abilities.
One of its unique aspects is that Avalanche is seen as having a more flexible infrastructure than other popular competitors to Ethereum such as Solana (CCC:SOL-USD). According to ZyCrypto online magazine, Avalanche boasts a rapid 4,500 transactions per second output rate. This compares to 15 transactions per second for Ethereum.
However, although Solana boosts 50,000 transactions per second, Solana does not have as much Total Value Locked (TVL) as Avalanche. TVL measures the total amount of cryptocurrency, measured in US dollars, staked in Defi (decentralized finance) protocols, as well as wallet deposits. In effect, it measures the popularity of the cryptocurrency, given the multitude of competitors it faces.
How This Affects Avalanche’s Valuation
But here is the thing. Solana has a market value of $53.55 billion. That represents a market value/TVL ratio of 4.58 times (i.e., $53.55b/$11.7b).
Therefore, if we were to apply this ratio to Avalanche, its market value should be substantially higher. For example, multiplying its $12.13b TVL by the 4.58 multiple raises its market cap to $55.55 billion. Obviously, with a $26.6 billion market value, today Avalanche’s market value is too low.
Granted Solana can process up to 50,000 transactions per second, compared to Avalanche’s 4,500 T/S. This might mean that the full multiple might not need to be applied. But even if we used 75% of that multiple, or 3.435 times (i.e., 75% x 4.58), the resulting market cap for Avalanche is $41.67 billion.
That represents a potential upside of 56.6% for AVAX crypto (i.e., $41.67b/$26.6b-1). In effect, its puts a price target of $172.24 on AVAX crypto (i.e., 1.566 x $109.99 price today).
What To Do With AVAX Crypto
Investors in cryptocurrencies might want to take a second look at Avalanche now that it is 24% off its peak price. This is much less a decline than many of its similar-sized cryptos.
Moreover, based on a comparison with Solana, it looks like AVAX crypto is at least 57% too cheap. It could be worth at least $172.24 if it were to gain just 75% of the market value using TVL as a metric compared to Solana. Making a 57% ROI is a pretty good ROI for most investors.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.