All bets are off with what happens to cryptocurrency in the short-term. But when it comes to long-term plays, there are several names where risk/return is in your favor. Recently, I have discussed Ethereum (CCC:ETH-USD) as one such example. Another example is a name that’s also looking to become widely used in decentralized finance (DeFi), Cardano (CCC:ADA-USD).
Why do I like this “Ethereum killer,” as opposed to other “killers” out there, like Polygon (CCC:MATIC-USD) and Solana (CCC:SOL-USD)? Because it remains one of the more underappreciated altcoins. After the Alonzo upgrades, investors decided to sell the news throughout the fall. Between September and November, it tumbled from around $3 per token to just above $1.50 per share.
If that’s not bad enough, ADA-USD didn’t avoid December’s crypto sell-off. Last month, it dropped around 19%. The result? Its valuation (based on its $44.85 billion market capitalization) still takes into account the potential for future increased usage. However, the market continues to underestimate the prospects of it ultimately becoming one of the mostly widely used cryptos.
Having said all this, I’ll concede that this cheap altcoin could get cheaper in the near-term. We may see it make more sharp dips throughout 2022. But if you’re long-term minded about crypto plays and can stomach the volatility, consider adding it to your portfolio.
The Bull Case for Cardano
ADA-USD is still a buy, even as it currently trades for around $1.32 per token. First off, while investors are more bearish than bullish about it right now, little has changed with the story behind it.
As I discussed in my last article on Cardano, its developers continue to make the right moves. In particular, this applies to enhancing or upgrading the token and its ecosystem. Last year, according to a report from analytics firm Santiment, Cardano led cryptos in developer activity.
Santiment stated that this fact didn’t mean much for its short-term performance. Even so, it may be something to consider when it comes to a particular crypto’s long-term potential. Additionally, as I’ve touched on in prior coverage of this altcoin, there’s a major catalyst for it this year. That is the launch of its Hydra scaling solution.
Once online, Hydra could help it beat out competitors like Ethereum and Solana when it comes to transaction speeds. According to reports, Hydra may give Cardano’s network the ability to process 1 million transactions per second. That said, before you jump into it, keep one thing in mind. This token, which has traded wildly over the past six months, could continue to do so in the months ahead.
You Can’t Escape High Volatility
There’s still a lot of uncertainty looming around both stocks and crypto. With this, you may be looking for crypto plays with high upside potential, but low volatility. Unfortunately, that’s going to be a challenge. Even the established names in this asset class, like Bitcoin (CCC:BTC-USD), are no strangers to wild price moves.
High volatility is likely on the menu for Cardano in 2022, even as it has found support between $1.20 and $1.50 per token over the past month. We could see a further crypto selloff in the months ahead. For example, the U.S. Federal Reserve will give more updates about its “interest-rate liftoff” plans. News of a faster move to higher rates could spur a further move out of risky assets like crypto.
This could result in ADA-USD falling back to below $1 per share. It hasn’t traded that low in nearly a year. However, high volatility and the potential for more weakness could be an opportunity for long-term investors. By buying it now, and buying more if it makes another dip lower, you could build up a position that in hindsight could be a more than favorable entry point.
In the years ahead, as upgrades like Hydra — plus other upgrades that enhance its DeFi capability — come online, it still has a shot of making its way well into the $100 billion crypto club (right now only occupied by Bitcoin and Ethereum). Comparing its chances of this playing out against the risk of continued price declines appears worthwhile.
Bottom Line on ADA-USD
After a rocky December, the coming months could prove to be tough for crypto investors. Yet, if you believe this asset class will survive a “return to normal” for the U.S. Federal Reserve’s monetary policies, now may be the time to build positions in the names with the best long-term potential.
Consider Cardano a long-term play to buy as it remains beaten down. It is making big progress improving its functionality. News of high developer activity is also an encouraging sign. Put it all together, and this altcoin’s prospects are still bright.
On the date of publication, Thomas Niel held LONG positions in Bitcoin and Ethereum. He did not hold any of the other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.