TL;DR: Cryptocurrency is a life changing opportunity for many people that get in early and know what they’re doing. It’s happening with AVAX and it will happen with other tokens on Avalanche as well.
It’s safe to say the crypto industry is still in its infancy with gigantic room left to grow. Avalanche crypto tokens might be quite a good investment, but you have to know how to asses the status of the AVAX network and its future value.
In this article, we’re gonna learn how to judge the economics of a blockchain such as Avalanche and draw a conclusion based on it.
Should you buy Avalanche (AVAX)?
With a total predicted market cap of $15 trillion by 2025, crypto investing is clearly on the rise. Over the past few years the crypto industry has maturated from “magic internet money” into fully fledged companies that are on their way to become major financial institutions.
From the 40 year old Bitcoin maxi to the 15 year old who flips JPEGs as a side hustle, putting some money in novel technologies such as cryptocurrencies is now a trending activity for investors of all ages. The new generation didn’t get their shot at investing in the tech giants of today, and crypto is seen as the next big technological revolution.
Why is that you ask? To put it short, traditional assets have reached their explosive peak. Digital assets such as tokens, coins, and NFTs are a new financial instrument that you can use to better diversify your investing portfolio.
Tired of small returns people are shifting their attention to more compelling assets — but that also comes with several downsides. Navigating these downsides and preparing yourself for what to expect when buying tokens is a crucial part of investing. Knowing all the intricacies is not always necessary but some knowledge is required to not blow up your account by investing in crypto.
Avalanche is a cryptocurrency and as any other cryptocurrency, it’s prone to volatility. After seeing the performance of the Avalanche chain it’s understandable to ask yourself if AVAX is a good buy right now.
Buying its native AVAX token is one of the possible ways of making money on Avalanche, but is it worth it? What does AVAX do and is Avalanche the future?
A clear answer to these 2 questions is needed before allocating a part of your portfolio to $AVAX.
Avalanche’s main strength is its scalability. This is achieved through the use of subnets and how the Avalanche consensus mechanism is designed.
Subnets are sovereign, they have their own execution logic, determine their own fees, and provide their own security. In this setup, the network can scale up easily while enabling lower latency, higher TPS, and lower transaction costs provided by the Avalanche Consensus.
Avalanche has a throughput of 4500 transactions per second and sub-second finality. This makes it one of the fastest blockchains in the space.
Why does Avalanche (AVAX) have value?
The AVAX token is named as “the common unit of account” of the Avalanche ecosystem.
In simple terms, AVAX is the native token for the Avalanche blockchain. It is used throughout the ecosystem and has many use cases.
Avalanche is the network (also called blockchain), and the $AVAX token is the fuel that powers it. Every interaction on the Avalanche chain requires users to pay a small fee, called gas fee. The gas fee is paid to miners & validators in exchange for securing the network.
Having no fees or a fee that is too low opens up the network to attacks and spam transactions. Blockchains work on the premise that attacks should be very expensive. If the fee is cheap attackers can spam transactions and clog the network. This is the case we’ve seen with blockchains such as Solana.
In the instance of Avalanche, its native AVAX token is used by both validators and users. Both of these network members (or “actors”) need $AVAX for different purposes. This creates an economic structure that is healthy for the future of the AVAX token.
Validators need to stake $AVAX to confirm transactions and produce new blocks. Such a rule is implemented so that malicious validators can get sanctioned if they try to attack the network. Being stable and immutable at all times are the primary scopes of a blockchain, everything else comes second. If a validator tries to include a bad transaction in a block then its stake is cut — a concept known as “slashing”.
Using the Avalanche blockchain also requires some AVAX, regardless of the type of transaction being sent. Users pay a small fee in AVAX to validators for verifying and including their transaction in a block.
Avalanche’s Snowman consensus mechanism requires AVAX tokens to be used as a measure for preventing bad behavior. Without it, users cannot make transactions and validators cannot join the network. With this in mind we can conclude that the main use case of the $AVAX token is securing the Avalanche blockchain.
Can the usage of the network affect the price of Avalanche (AVAX) tokens?
As more people join the network and use Dapps on Avalanche it impacts the dollar amount that new buyers will have to pay when buying AVAX coins. If more users join the network, that puts economic pressure on the supply of the AVAX token. A bigger number of people will need to buy AVAX tokens — making the price of Avalanche go up as more people use the chain and the dapps on it.
This also has an effect on the actors that validate the transactions users make on the network. More people means more transactions, and more transactions means more fees.
So the more people use the network, the higher the revenue for all validators becomes. As the revenue grows, more validators join the network, buying and staking AVAX tokens to participate.
This correlation between network usage and the value of the native token is a natural occurrence in Proof of Stake blockchains such as Avalanche. It is also what gives the AVAX token its primary monetary value. How high that value can be is detailed in the next sections.
Why is Avalanche (AVAX) going up/down?
Avalanche, like any other cryptocurrency is volatile by nature. When you see the price suddenly go up or down, it’s normal to ask yourself why that happens.
The price of a cryptocurrency is influenced by many factors like supply, usage, vesting schedule and market sentiment. Due to its tokenomics, the AVAX token is inflationary, meaning the price is naturally trending downwards. Because tokens are being released over time this results in selling pressure from investors.
But that does not mean it can’t go up or down in price based on how much the Avalanche blockchain is used. Usage is usually the key metric that influences the price of a token.
A negative event such as a lawsuit or a major outage can have broader implications for investors and result in the token price going down.
Positive events such as the release of the or partnerships such as KKR deploying real-world assets on Avalanche gives confidence to investors in the long run.
This brings more users to the Avalanche ecosystem and usually has a positive impact on the price, making it go up. Other parts of the Avalanche tokenomics can also influence the price, let’s see what those are.
A portion of a token’s supply is usually locked at launch, with the rest being slowly released in time. This can mean months, years or even decades — so it’s important to know the specific timeline of the chain you’re investing in. Such releases are mentioned in official documents such the Avalanche roadmap or whitepaper.
Scheduled vesting unlocks and investors selling their newly unlocked tokens can put selling pressure on the token. This can make $AVAX — the fuel of the Avalanche chain — go down in price temporarily.
However, as long as usage continues to grow that shouldn’t have too much of an impact in the long-term. The price of a coin is a complex number that stands on top of many pillars that are constantly changing.
Blockchains are resilient by design and have a couple of measures implemented at the protocol level to combat possible issues. This ensures the Avalanche network can still function or in the worst case come back online at a later time, unaffected. Unless a catastrophic event occurs it’s impossible to pinpoint the price movement to one single cause.
Can AVAX reach $100 per token?
Buying and hodling AVAX — the native token of the Avalanche chain — is one way of potentially making money on Avalanche.
By looking at its current price, it’s natural to think about the chance of AVAX hitting $100 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.
Let’s examine the potential growth of the AVAX token by analyzing its tokenomics. Avalanche’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} Avalanche tokens being in circulation today, that means a price of {PRICE} per AVAX.
How did we come to that calculation? It’s quite easy, the price of an Avalanche token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each AVAX coin.
By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of Avalanche at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for Avalanche to hit that price.
At a price of $100 per token, that means the current market cap of Avalanche would equal ${{CIRCULATING_SUPPLY} * 100}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $100.
Now let’s shift our attention to the fully diluted market cap.
Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.
The fully diluted market cap represents the total value of a coin if all tokens were in circulation. Avalanche’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} AVAX which means that no more coins above that number will ever be created.
These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.
How does this impact the price of Avalanche? Taking into account the current price of an AVAX token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. AVAX coins that have been burned are not taken into consideration because they have been permanently removed from circulation.
Whether it seems gigantic or not, the number we came to above only takes into account the current price of a AVAX token. Doing the same calculation but with a price of $100 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 100} for the Avalanche network fully diluted market cap.
These are all crucial details to know when calculating if Avalanche can reach the price of $100 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.
The future of Avalanche depends solely on its growth as a network used by tens and hundreds of millions of users.
If you’re looking to add some Avalanche (AVAX) to your portfolio, the most trusted places to get some are Binance and Coinbase.
Is Avalanche (AVAX) dead?
If the price of a coin has stagnated for a long time, it’s healthy to ask yourself if the project has indeed died. Price, however, is not the only factor that should lead you to this assessment.
There are many other parts in the lifecycle of a blockchain that have to function properly for it to keep growing. Another important factor is the activity of the Avalanche development team.
If the development team, or Avalanche developers in general, have signaled the abandonment of the network that’s a bad sign for the Avalanche ecosystem. Lower development activity on the Avalanche network means fewer dapps being built.
A blockchain such as Avalanche gets its users from the number of dapps released on it. They’re the primary motive to use a smart contract platform such as Avalanche, without dapps there’s no incentive to use it.
The fewer dapps are available, the less users want to use the Avalanche blockchain for their transactions. When more dapps get deployed, new use cases become available and more users join the Avalanche (AVAX) ecosystem.
Currently, the Avalanche (AVAX) blockchain is thriving both in dapps and development activity. This translates into a healthy ecosystem and new participants that join the network. With increased usage of the network comes more fees to validators, which are incentivized to spin up more nodes and further decentralize the network.
This cycle needs to always function smoothly to keep Avalanche and its ecosystem alive. To asses the current status and future of a network we need to take a look at the latest updates and plans.
The biggest updates on the Avalanche (AVAX) chain is the activation of Cortina upgrade.
More updates are also prepared for Avalanche, but the development team remains secretive about its roadmap.
You can keep up to date with developments in the Avalanche ecosystem by following the most recent news that come out. The two main ways to do that is to periodically check all the Avalanche (AVAX) specific web pages, or by following a central news source that posts updates as soon as they happen.
Even if the network growth starts to stagnate, knowing about it just a bit too late can make your whole investment worthless.