Down 45% From Record Highs, Is Avalanche Cryptocurrency a Buy?

Avalanche is a cryptocurrency that should be on the shopping list of most investors given the ability of its blockchain network to execute smart contracts.

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The prices of cryptocurrencies remain volatile in 2022 despite the widespread adoption of these digital assets in the last two years. After a stellar run since the bear market of 2020, cryptocurrencies have nosedived in the last four months.

At the time of writing, Avalanche (CRYPTO:AVAX) is the 10th-largest cryptocurrency in the world, valued at US$20.98 billion by market cap. The price of one AVAX token surged over 3,000% in 2021 but is now down 45% from all-time highs. Let’s see if you should buy the dip in Avalanche right now.

The bull case for Avalanche

A layer-one blockchain, Avalanche is a platform where you can develop decentralized applications, or dApps. Similar to Ethereum, the Avalanche network can also be used to create and execute smart contracts. The blockchain network can handle up to 6,500 transactions per second.

The Avalanche network has a unique architecture and consists of the X-Chain, P-Chain, and C-Chain. Every chain has a unique purpose and is different from the proof-of-work validation mechanism used by Bitcoin and Ethereum. Its mainnet was launched two years back, allowing developers to create a robust ecosystem of dApps and DeFi (decentralized finance).

Several other Ethereum-based projects including TrueUSD and SushiSwap have integrated with Avalanche as developers continue to improve interoperability between Ethereum and its own network. This is done by the development of bridges.

Right now experts believe blockchain networks will find it difficult to maintain their decentralized properties at scale. We have seen how Ethereum is wrestling with high transaction costs due to its rapidly widening ecosystem. Avalanche’s three interoperable chains mentioned above aim to solve these issues.

For example, the X-Chain permits you to trade the AVAX token with other assets. The C-Chain hosts smart contracts and other dApps, while the P-Chain helps to coordinate validators of the network.  

Basically, these three chains have allowed Avalanche to benefit from higher throughput without having to compromise on decentralization features.

Launch of the Avalanche Multiverse

On March 8, the Avalanche foundation announced the launch of the Avalanche Multiverse, which is an incentive program valued at US$290 million, or four million AVAX tokens. The program should accelerate the adoption and growth of the subnet functionality that enables a widening ecosystem of scalable blockchain networks.

The program first focused on supporting new ecosystems that include blockchain-enabled gaming, as well as NFTs and DeFi. Now the “Avalanche Metaverse will bring a DeFi Kingdoms specific Subnet or ‘appchain’ with a combined maximum of $15M of incentives for $AVAX and $CRYSTAL, a new Avalanche-native token created by DeFi Kingdoms to complement its existing $JEWEL token.”

Initially, Avalanche Rush accelerated the second wave of DeFi growth on the Avalanche blockchain. It launched last August and the total value locked on the blockchain increased to US$16 billion, from US$312 million in the last six months. Further, the unique addresses grew to 2.2 million, up from 137,000 while transactions soared to 112 million from just four million.

We can see that the real-world use cases of the Avalanche blockchain continue to increase, which should positively impact demand for the AVAX token over time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin, Ethereum, and SushiSwap.

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