on the crypto
A defining feature of this year's cryptocurrency market is how well Ethereum has outperformed its main blockchain rivals. Yes, Ethereum is down 67% on the year, but have you seen how much its rivals have fallen? Former “Ethereum-killer” Solana is down 92%, while Avalanche is down 88%.
In 2022, Ethereum benefited from a clear flight to quality, as investors fled all perceived risky names in the cryptocurrency market to focus on trusted and established names like Ethereum. For this reason, it is safe to say that many of Ethereum's blockchain rivals will recover in 2023, when investors have recovered their risk appetite for cryptocurrencies. Here's an insight into why Solana and Avalanche may outperform Ethereum in 2023.
Ethereum has no meltdown next year
In 2022, Ethereum benefited from the hype and anticipation of the system update known as The Merge, often described as one of the biggest events in cryptocurrency history. This narrative focused investors on Ethereum's future potential and gave the cryptocurrency a price surge over the summer ahead of the Merge.
However, from an investment standpoint, the merger has proved unsatisfactory to say the least. While Ethereum will continue to add more tweaks and changes to its blockchain in 2023, it simply doesn't have a catalyst like The Merge to attract the attention of Investors. If you haven't heard about Ethereum's upcoming Shanghai refresh scheduled for next year, there's a good reason: At best, it represents incremental improvements.
Solana and Avalanche continue to develop rapidly
If you just look at the performance of the market this year, one would think that Solana and Avalanche are fading into obscurity. Of course, both are at risk of falling out of the list of the top 20 cryptocurrencies in the world by market capitalization. However, both continue to develop at a rapid pace. Solana, for example, is making inroads into the non-fungible token (NFT) market, where it is now only behind Ethereum in terms of sales volume. And Avalanche has been seeing strong transaction activity data for months, a sign that it is perhaps starting to regain its momentum in the area of decentralized finance (DeFi).
Additionally, both Solana and Avalanche have strategic initiatives planned for 2023 that should attract investors' attention. Solana, for example, has a new mobile strategy that promises “Web3 in your pocket” and will be launched in the first quarter of 2023. Avalanche is introducing a series of Layer-2 scaling solutions that will make it even faster and more efficient, so how Ethereum has used Layer-2 scaling solutions to fuel its growth.
The end of the “winner takes all” thesis
Finally, one of the reasons I believe both Solana and Avalanche will surpass Ethereum in 2023 is that the winner-takes-all investing thesis in the blockchain space is no longer as dominant as it once was. In a “winner-takes-all” scenario, Ethereum achieves “merger”, increasing its speed and functionality, and thus is able to annihilate its rivals. Over time, it is thought, Solana and Avalanche will simply run out of funds and fall out of favor with developers and users. In this scenario, a 90% price drop for both this year makes sense, showing that investors see them as worthless.
But is this really what is happening? One could argue that Solana, for example, was unfairly dragged down by the whole FTX contagion saga, given the ties between Sam Bankman-Fried, FTX, and Solana. And Avalanche was dragged down by a controversy involving potentially unfair competitive practices. Coupled with the general market crash, this added layer of risk has made both Solana and Avalanche too hot for most investors.
The opposite of the outright winner is a dynamic and competitive market where there are several large Layer-1 blockchains competing with Ethereum. In this case, Solana and Avalanche will continue to coexist with Ethereum and each of them will have at least one niche in which to excel.