“Which cryptocurrency should I invest in?”
- Bitcoin (BTC)
- Ether (ETH), native coin of the Ethereum blockchain
- SOL, native coin of the Solana blockchain
- AVAX, native coin of the Avalanche blockchain
All these selections are layer 1 protocols—critical components of blockchain technologies and the settlement mechanisms for decentralized transactions. In other words, they form the foundation of what can be built on top of the blockchain and how fast transactions can be processed. That makes them the key constituents of the fastest-growing area of the blockchain economy: decentralized finance, or DeFi, a borderless, friction-free, cheaper and faster alternative to the current financial system.
“That means you can lend or borrow within a peer-to-peer network using smart contracts,” says Zagari. Smart contracts are programs stored on a blockchain that automatically execute when predetermined conditions are met.
“Solana and Avalanche, among others, compete with Ethereum; [therefore] holding these core layer 1s, including Ethereum, is a way to diversify your holdings with exposure to decentralized applications (dApps),” Zagari asserts.
DApps facilitate access to DeFi services such as lending, yield farming and trading, among others.
Regulatory roadblocks
Government regulations can have an outsized impact on the value of digital assets. All too often, “selling pressures on both altcoins and bitcoin have been typically based on political and regulatory factors,” Zagari notes.
Some governments aren’t comfortable with cryptocurrency’s decentralized and unregulated nature, and they look for ways to control the crypto market. Countries such as China and Indonesia have imposed outright bans, while others have proposed bills to limit crypto. Such moves can negatively impact crypto value.
More recently, digital assets have shown vulnerability to global political and economic events. “Today’s macro and micro factors seem to be affecting crypto’s coin values within the same way as tech equities,” says Zagari, but he adds, “It’s too early to tell if this trend will continue in the future.”
Furthermore, inflation, rising interest rates and a potential job market correction have caused some investors to tighten their purse strings. Zagari says, “The temptation to liquidate your crypto holdings back into fiat might be appealing for some.” This scenario, he adds, could “increase selling pressure while delaying more institutional adoption of cryptocurrencies,” leading to crypto value erosion.