As I’ve written — and said — often, trying to time the markets is a fool’s errand. The crypto markets, in particular, are too volatile to time precisely. And for buy-and-hold investors, investment time horizons are more important than investing at exactly the right moment. If you’re holding on to a crypto investment for a few years, today’s exact price is less relevant. The expectation is that the bull market price will be significantly higher than what you would pay today. And that’s the only thing that matters.
But that doesn’t mean timing isn’t important. I recommended Polygon and Polkadot after the crypto markets had crashed earlier this year. And now, they’re doing quite well. In fact, if you invested in both coins right after our recommendation, you would be up 54% and 27% respectively. We recommended Solana just before the crypto market crashed earlier this year (sorry about that). It’s down 56% since I recommended it. I still think Solana will recover in the next bull market and be very profitable. But it’s going to take longer than I would have liked.
Overall, the First Stage Investor crypto portfolio is pretty healthy. It has three triple-digit winners. And Solana is the only coin in the red. So if you’ve followed our recommendations, you’re doing fairly well.
The Right Time
I’ve been sitting on today’s recommendation for about three months. I just didn’t feel the timing was right to recommend this coin. That changes today.
For the next couple of months, Ethereum will be one of the biggest stories in crypto. The Merge, when Ethereum shifts from a proof of work protocol (like bitcoin) to the more efficient proof of stake protocol, is slated for September 19. I expect the Merge to act a bit like a bitcoin halving and trigger an ethereum price surge.
We’re already starting to see some of this happen in the market. As I write this, ethereum is up 8% in the last 24 hours and 12% over the last week and is outperforming bitcoin. Some of the positive price action can be attributed to a general market surge after better than expected inflation news this week. But some of it is Merge related as well. (Allison Brickell and I will talk about how the futures markets are treating the Merge in Monday’s Crypto Insider podcast.)
There’s certainly a good short-term and long-term case to invest in Ethereum right now. (I’ll make that case in the podcast as well.) But as Ethereum soaks up investor attention, opportunities to buy into undervalued Ethereum alternatives will emerge. That’s why I’m recommending Avalanche (AVAX) today.
Avalanche competes directly with Ethereum in the smart contract and decentralized apps space. It was designed to address the inadequacies of most cryptos — including slow and expensive transactions, lack of true decentralization and security problems — by moving transactions off chain.
Avalanche employs a novel multi-chain approach to create a faster and more secure ecosystem. One chain is used to manage and process smart contracts. Another chain is used to manage validators. And the last chain is used to manage assets, send and receive funds and process transactions. The coin used for all of this is AVAX — which is what you buy when you invest in Avalanche.
By using multiple chains, Avalanche tries to lessen or eliminate transaction congestion within its networks. That both drives down costs and increases transaction rates.
The difference in transaction rates between Avalanche, Bitcoin and Ethereum is remarkable. Avalanche can support more than 4,500 transactions per second (TPS). The best Ethereum has ever done is 108 TPS. (Note: That is expected to change substantially when the Merge is complete.) Bitcoin, excluding scaling solutions, typically handles around 7 TPS.
Avalanche is already being used for DeFi (decentralized finance), metaverse apps and blockchain-based games. And it’s important to keep in mind that the decentralized app and smart contract space isn’t a winner-take-all market. There’s more than enough room for a more robust Ethereum 2.0, Avalanche and other projects to succeed.
AVAX has been on a roller coaster the last three months in terms of price action. Three months ago, it was trading around $30. In June, it dropped to a low of around $14. It’s now trading around $29. AVAX’s resilience is a good sign. It shows there is some support and belief in its long-term outlook among investors.
AVAX and ETH tend to follow similar trading patterns. But in the past several months, AVAX has hit lower lows and higher highs. It makes sense that Avalanche is displaying more volatility than ethereum. Ethereum is much more established with a market cap of around $230 billion. Avalanche’s market cap is around $8 billion.
With ETH prices expected to soar in the near term, AVAX presents an interesting two-way play. There’s some definite short-term potential to see a price hike. But I think Avalanche’s long-term potential is far more interesting. It hit an all-time high of $134.53 last year. I believe if it continues to progress, it can surpass that during the next bull market.
That said, we are still in a crypto bear market. So let’s go over the rules of the road for investing in this environment.
Rules of the Road
Investing in a bear market is tricky. It’s likely that the market will go down further from here. But it’s important to be opportunistic. So if you have capital to invest — and you’re psychologically and emotionally willing to enter what promises to be a highly volatile market — here are some guidelines to follow.
- Do not invest money you can’t afford to lose. The markets are in for a rough ride. If you can’t afford to lose the money, don’t risk it.
- Focus on projects with strong use cases.
- Look for teams or communities that are active and committed to their projects.
- Always enter a position using dollar cost averaging. That means buying a small amount each week rather than buying your entire position at once. That way, if prices continue to fall, you lower your overall acquisition cost.
- Don’t try to time the market perfectly. Nobody can. And I believe this bear market will be around for several months. So if you want to wait, that’s perfectly okay. But when you do invest, make sure you utilize dollar cost averaging to buy into the market.
- Diversify your crypto portfolio. From a percentage standpoint, bitcoin and ethereum should be the biggest investments in your crypto portfolio. But you need exposure to a much broader and more diverse set of coins to take advantage of the full upside of the crypto markets. Bear markets are a good time to diversify your portfolio and increase exposure to different crypto sectors.
Despite the fact that we’re in an extended bear market, I believe Avalanche provides an attractive risk-reward ratio. The timing is right. And Avalanche’s performance to date justifies the risk.
Avalanche can be bought and sold on both Coinbase and Binance US. But remember, investing in crypto is risky. Investing in a crypto bear market carries even more risk. Don’t invest money you can’t afford to lose. And make sure less than 5% of your overall portfolio is invested in crypto.
Note: KingsCrowd Investment Research Analyst Yasmin Sharbaf contributed to this piece.