Disruptive decentralized finance (DeFi) cryptocurrency Algorand (ALGO-USD) has recently plummeted along with many other digital assets. ALGO is currently swapping hands around 73 cents per token, down more than 50% year-to-date (YTD). Its all-time-high (ATH) of $3.56 on June 20, 2019, is now in the rearview mirror.
However, Algorand is not the only digital asset to come under pressure. The downward trajectory in the crypto space mainly started in November 2021. Then, in January, the market took a bigger dive as the mood in equities also turned sour. So far in 2022, Bitcoin (BTC-USD) and Ethereum (ETH-USD), the largest cryptos, are down YTD by 19% and 33%, respectively.
With a market capitalization of around $4.8 billion, ALGO currently ranks as the 30th-largest crypto according to CoinMarketCap. Investors now wonder whether Algorand can reach $3 territory again any time soon. For instance, the ongoing war in Ukraine and sanctions against Russia are creating tailwinds for leading digital assets, and that could keep ALGO’s price down.
Yet uncertainty in equity markets and worries over the results of Russia’s invasion of Ukraine will create choppiness in March. Thus, it is impossible to make short-term price projections. However, interested readers with a two- to three-year horizon might want to invest in ALGO using a small allocation in their portfolios.
With that said, let’s see what’s in store for Algorand in the near future.
ALGO is a DeFi Crypto
Algorand was first created back in 2017 by Massachusetts Institute of Technology (MIT) professor Silvio Micali. The network merges traditional economic methods with encrypted financial models. It aims to become a scalable DeFi blockchain system, or “FutureFi.”
Regular InvestorPlace readers may know the blockchain uses a permissionless, pure proof-of-stake (PPoS) consensus mechanism as opposed to a proof-of-work (PoW) protocol, which is used by first-generation blockchains such as Bitcoin and Ethereum. PPoS is less energy-consuming, more secure and faster compared to PoW.
Its digital currency, ALGO, is the native cryptocurrency on the Algorand blockchain. It has a maximum supply of 10 billion coins, with roughly 7 billion ALGO coins in circulation.
Recent metrics highlight, “Contracts Market size was valued at USD 144.95 Million in 2020 and is projected to reach USD 770.52 Million by 2028, growing at a CAGR of 24.55% from 2021 to 2028.” Therefore, crypto investors should pay close attention to the smart-contract potential of the platform.
In addition, the multi-layered structure of Algorand enables interoperability and higher efficiency. Layer one is where developers can place simple smart contracts to create digital assets. Layer two comprises complex off-chain smart contracts. Such DeFi applications require more customization.
Finally, Algorand is “unforkable.” In other words, assets on the network can’t be repudiated or erased. That is a considerable advantage for non-fungible token (NFT) creators and collectors. A fork can end up duplicating NFTs, which reduces their values. As a side note, Bitcoin has so far forked 105 times.
Algorand is Growing
There are more than 10,000 digital currencies listed in the crypto space. Yet only a number of cryptos stand out with real-world use cases and solid fundamentals.
Algorand has the backing of more than 500 institutional partners and global organizations. They include UC Berkeley, MIT and Cumberland Advisors.
The platform is also popular for building Central Bank Digital Currencies (CBDCs). According to a presentation at the Benzinga Crypto Festival, Algorand’s blockchain technology is supporting 16 CBDCs.
For example, El Salvador, which has accepted Bitcoin as legal tender, is using the Algorand infrastructure technology. Also, the Marshall Islands uses the blockchain network for its digital currency, the Marshallese Sovereign (SOV). It is legal tender alongside the U.S. dollar.
To accelerate adoption, the Algorand Foundation set up a $10 million SupaGrant reward for teams that improve the process of delivering Ethereum Virtual Machine (“EVM”) compatibility.
The Bottom Line on ALGO
Cryptocurrencies such as Algorand are speculative and volatile assets. The recent financial sanctions on Russia have also put cryptos in the limelight. Analysts and some governments debate if these assets could become a safe haven for Russia — and some of its super-wealthy citizens — to avoid restrictions.
Despite its tangible potential, market sentiment could easily overshadow Algorand’s fundamentals. Yet over the long term, cryptocurrencies with superior technical features, like ALGO, are poised to be multibaggers.
On the date of publication, Tezcan Gecgil did not have (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.