- There are more than 10,000 cryptos in virtual circulation
- It's important for altcoins to have real life utility
- Smart Contracts are continuing to gain traction
Crypto investors certainly have no shortage of choice these days.
With new altcoins launching almost every day, far outpacing the numbers that fail and are removed from virtual circulation, there are now more than 10,000 cryptos to potentially invest in.
With that in mind, The Motley Fool turned to Josh Gilbert, crypto analyst at multi-asset investment platform eToro, for his take.
Below we look at 5 altcoins, all currently within the top-21 cryptos by market cap, that have the potential to outperform in the year ahead.
A word of caution
Before discussing his views on 5 promising altcoins for 2022, Gilbert reminded us that as a broker, eToro can't offer financial advice.
He also had these words of caution for our readers:
It's important to remember that crypto is a volatile asset class. Anyone considering investing should research the ideas behind the crypto asset they are looking at, and the potential uses it could have. Investors must look beyond headline numbers, understand what they are investing in, and not invest more than they can afford to lose.
With that out of the way, Gilbert said that while there's no way of knowing with certainty which cryptos could boom in the coming months, "these 5 coins are assets that have potential".
Five cryptos with the potential to outperform
The first altcoin Gilbert pointed to is Solana (CRYPTO: SOL):
Solana is one of the fastest blockchains in the world. The Solana Network has gained traction in the NFT space, where users can mint, buy and sell NFTs [non-fungible tokens] via the network. SOL soared in 2021, but has seen a dramatic correction in 2022, down 57% from its high.
Why is 2022 looking potentially strong for Solana?
"As Smart Contract platforms continue to gain traction, 2022 could be a key year for Solana," Gilbert said.
With a market valuation of US$34.8 billion, Solana is the 7th biggest crypto. Down 9% over the past 24 hours, Solana is up 14% since this time last week, according to data from CoinMarketCap.
The next crypto with strong potential is Polygon (CRYPTO: MATIC). Gilbert explained that, "Polygon is a protocol and framework built with the aim of building and connecting Ethereum-compatible blockchain networks."
Why is this one worth keeping an eye on?
According to Gilbert:
Its token, MATIC, has gained a lot of traction in the DeFi [decentralised finance] space for its low transaction costs and seems to be addressing common blockchain issues such as slow speeds and high costs whilst maintaining high levels of security.
Polygon is the 14th biggest crypto with a market valuation of US$12.2 billion. It's down 1% today and up 3% over the past 7 days.
The third altcoin with strong potential is Chainlink (CRYPTO: LINK):
Chainlink is a blockchain layer used to universally connect smart contracts. Secure interaction between complex smart contracts and external data feeds, payment methods and events are supported. The crypto asset is built on Ethereum and is an ERC-20 token.
Gilbert told us Chainlink has good potential because, "LINK is looking to revolutionise traditional finance through DeFi. It has use cases from decentralised exchanges, insurance, stablecoins and even money markets."
Next up he highlighted Polkadot (CRYPTO: DOT). He said:
Polkadot is a blockchain network designed to support various interconnected, application-specific sub-chains called parachains. In addition, the crypto asset is looking to enable bridges that will allow the Polkadot network to interact with other blockchains like Ethereum and Bitcoin. This will also allow tokens to be swapped without a central exchange.
Why could Polkadot be an outperforming crypto in the year ahead?
"Combining blockchains will be essential in 2022 as decentralised finance gains further traction," Gilbert said.
Polkadot is the 10th biggest crypto with a market valuation of US$20.1 billion. Polkadot is down 9% today and up 6% since this time last week.
Rounding out the list of cryptos with strong potential is Decentraland (CRYPTO: MANA):
Decentraland is a decentralised virtual reality blockchain platform that allows users to purchase, build and monetise virtual reality applications. The MANA coin surged in value through 2021, as talks of the 'Metaverse' accelerated. However, the crypto asset has since retreated 55% from its all-time high.
Why is Decentraland potentially well set to shine in 2022?
"With the Metaverse still only taking shape, it has a lot of potential in 2022," Gilbert said.
Why crypto investors should research utility
With more than 10,000 altcoins to choose from, we asked what crypto investors should be looking at, atop doing their own thorough research.
Gilbert said the 5 cryptos named above, "have already established themselves in the crypto ecosystem. With cryptoassets, the most significant focus has to be utility, and these 5 altcoins have this in abundance."
We also asked what types of 'moats' or barriers to entry these 5 cryptos might have to prevent rival altcoins from stealing their lunch.
According to Gilbert:
These altcoins are some of the biggest and most well-known altcoins, therefore, they can innovate and evolve when competition arises. In addition, they have the industry's top developers, which is key to any crypto project. However, these talents can come at a premium and are scarce.
On top of this, the altcoins mentioned have vast volumes of transactions flowing through their networks, mostly as a result of having loyal customers that trust their networks. DOT, LINK, MATIC, SOL and MANA are all currently in the top 16 cryptoassets for volume on Messari.
There's no getting away from these cryptos' price correlation to Bitcoin though. At least, not yet.
Gilbert told us:
Currently, Bitcoin has a crypto market dominance of around 43%, which consequently means most altcoins have a high correlation. If Bitcoin's price sinks, you're likely to see altcoins suffer and vice versa.
Ultimately, Bitcoin acts as the primary driver of market sentiment.