What a difference a year makes. Coming into 2021, Avalanche (AVAX -4.15%) was a relatively little-known cryptocurrency with a market cap of less than $300 million. That was actually an impressive achievement considering that Avalanche had been launched only a few months earlier.
Fast forward to today. Avalanche now boasts a market cap of more than $27 billion, moving past sizzling-hot Shiba Inu. That's enough to rank its native AVAX token as the No. 11 biggest cryptocurrency in the world, according to CoinMarketCap. But could buying this hot cryptocurrency make you a fortune now?
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Making buyers a lot of money
There's no arguing that early buyers of Avalanche are now much richer. An initial $1,000 investment at the beginning of 2021 would now be worth well over $34,000.
This isn't a case where only the early birds get the worm, though. Even if you had waited halfway through the year to scoop up Avalanche tokens, you'd still be doing very well. The cryptocurrency has delivered a return of nearly 11X since early July.
What if you still missed the boat and didn't buy Avalanche until a month ago? No worries. Your gain would still be around 90%.
Sure, Avalanche seems to have leveled off for now. However, that's the situation for many other cryptocurrencies. Based on its historical performance, it could be only a matter of time before Avalanche again goes on a tear.
Behind Avalanche's success
There are thousands of cryptocurrencies. Why did Avalanche break out while many haven't? The best answer is its blockchain architecture.
Like Ethereum (ETH -0.75%), Avalanche's platform supports smart contracts. But it's the differences with Ethereum that have made Avalanche increasingly popular. In particular, Avalanche is much faster and has much lower fees. These advantages are made possible by Avalanche's three interoperable blockchains:
- Exchange Chain (X-Chain): supports the creation and trading of the native AVAX tokens.
- Contract Chain (C-Chain): facilitates the creation of decentralized apps based on smart contracts.
- Platform Chain (P-Chain): coordinates validators that verify transactions and supports the creation of dynamic sets of these validators called subnets.
Thanks to this triple-blockchain design, Avalanche can process more than 4,500 transactions per second and still be highly scalable. Its "time to finality" (when a transaction has been irreversibly finalized as an addition to the blockchain) is under two seconds. By comparison, Ethereum can process in the ballpark of 14 transactions per second with a transactional finality of six minutes.
These advantages are resulting in the increased adoption of Avalanche. Deloitte announced last month that it's working with Ava Labs to develop a disaster recovery platform built on the Avalanche blockchain. This system will help state and local governments prove their eligibility to receive federal funding for emergencies.
Avalanche already has more than 150 projects in its ecosystem. These projects include decentralized finance (DeFi) wallets and non-fungible token (NFT) marketplaces.
A fortune in your future?
Let's return to the key question. Can buying Avalanche make you a fortune? I think the answer is yes.
Allow me to qualify that answer, though. I don't expect that Avalanche will deliver a 34X gain over the next year as it has over the previous 12 months. If it did that, it would be bigger than every other cryptocurrency on the market right now other than Bitcoin. That's possible but not probable.
It's also important to note that Avalanche's success going forward is joined at the hip with broader acceptance of cryptocurrencies in general. While I fully expect continued momentum for cryptocurrencies, there's always a possibility that circumstances could change.
My view, however, is that Avalanche could very well generate big returns going forward. I can definitely see how Deloitte's adoption of the blockchain could drive increased interest. Rising interest would almost certainly lead to a rising price for the AVAX token.
