At a time when Bitcoin (BTC 1.18%) is up a head-spinning 60% for the year, and several popular altcoins are up more than 50% for the year, the underperformance by other top cryptocurrencies is particularly jarring. Of the cryptos that rank in the top 40 by market cap, one-quarter of them are down more than 10% for the year.
Two names that stand out for me are Avalanche (AVAX 0.79%), down 20% for the year, and Polygon (MATIC +0.00%), down more than 30% for the year. It's been a tough year for both of them, but I wouldn't rule them out entirely as potential investment targets. Both have key catalysts in place that could help them pop sooner than you might expect.
1. Avalanche
Let's start with Avalanche, which first burst into prominence as a potential Ethereum killer back in 2020. After rocketing in price up to an all-time high of $146.22 during the last crypto bull market rally, Avalanche is down 94% and is now trading under $10. There's a huge discount here for crypto investors, but the big question is whether or not Avalanche's best days are behind it. While it's undeniable that user growth and transaction activity are down on the main Avalanche blockchain, two key catalysts could be setting the foundation for strong long-term growth.
Image source: Getty Images.
The first of these is the growing interest in blockchain technology by large enterprises. In 2023, Avalanche inked partnerships with Amazon (via its Amazon Web Services cloud computing unit) and Chinese tech giant Alibaba Group. The goal of these partnerships is to sell blockchain-based services to cloud computing clients. Simply put, the same enterprise and government clients that embraced cloud computing could soon be ready to embrace blockchain technology for their business operations. If Avalanche can capture even a small part of this future growth, it could be huge for its valuation.
The second key catalyst is the asset tokenization trend. Asset tokenization refers to the transformation of real-world financial assets into digital assets that can be managed and traded on a blockchain. This can refer to traditional assets (such as stocks and bonds), as well as more illiquid assets (such as expensive fine art or stakes in private equity funds). This is an area where Avalanche has excelled, and one that Avalanche has highlighted for future growth.
Several big Wall Street players -- including asset manager BlackRock -- are behind the asset tokenization trend, which is one big reason why I think it has staying power. The big idea here is that Avalanche could become the blockchain of choice for financial services firms looking to tokenize traditional financial assets.
2. Polygon
Until this year, Polygon was largely considered to be the premier Layer 2 scaling solution for the Ethereum blockchain. This simply means that Polygon's blockchain (the Layer 2) sits on top of the main Ethereum blockchain (the Layer 1) to deliver superior performance in the form of greater scalability, lower fees, and higher transaction throughput.
CRYPTO: MATIC
Key Data Points
But investor perceptions of Polygon changed in 2023, as the Layer 2 space suddenly became very crowded. Four other Layer 2 blockchains are now ranked among the top 50 cryptocurrencies by market cap, and Polygon's price began to crater in mid-February. Yes, Polygon has an impressive client list that includes a number of popular brands, but as they say, you're only as good as your last client. And the fear is that Polygon might soon be losing out to other Layer 2 competitors.
That's hardly a compelling case for investing in Polygon, but here's the thing: In mid-September, Polygon rolled out a brand-new strategy called Polygon 2.0 that fundamentally reimagines what Polygon does, how it offers value, and where future growth will come from. To make a long story short, Polygon will change its overall blockchain architecture and expand beyond just Ethereum to include many other blockchains. Polygon says it plans to pull off this transformation early in the fourth quarter, which is why this crypto might pop sooner than many people expect.
Are these beaten-down cryptos worth buying?
Granted, there are a lot of beaten-down cryptocurrencies out there, and many of these are not worth buying. For example, just because Dogecoin is down 12% for the year doesn't mean it's undervalued. It's still just a silly meme coin.
But I think the story is different with Avalanche and Polygon. Both offer clear utility and both have long-term catalysts in place for future growth. There is tremendous risk involved, but investing now could mean setting up your portfolio for incredible long-term gains. If you're risk-averse, these two cryptos may not be for you. But if you are willing to take on enormous risk and potential price instability heading into 2024, the payoff could be huge.
