- Bitcoin (BTC)
- Ether (ETH), native coin of the Ethereum blockchain
- SOL, native coin of the Solana blockchain
- AVAX, native coin of the Avalanche blockchain
All of these choices are Layer 1 protocols — critical components of blockchain technologies and the settlement mechanisms for decentralized transactions. In other words, they form the basis of what can be built on top of the blockchain and how fast transactions can be processed. That makes them key components of the blockchain economy’s fastest-growing area: Decentralized Finance, or DeFi, a borderless, frictionless, cheaper, and faster alternative to the current financial system.
“That means you can lend or borrow within a peer-to-peer network with smart contracts,” says Zagari. Smart contracts are programs stored in a blockchain that run automatically when specified conditions are met.
“Solana and Avalanche compete with Ethereum among others; [therefore] Holding these core layer 1s, including Ethereum, is a way to diversify your holdings by giving you exposure to decentralized applications (dApps),” Zagari explains.
Among other things, DApps facilitate access to DeFi services such as lending, yield farming and trading.
Regulatory Obstacles
Government regulations can have an outsized impact on the value of digital assets. All too often, “selling pressure on both altcoins and bitcoin is typically based on political and regulatory factors,” notes Zagari.
Uncomfortable with the decentralized and unregulated nature of cryptocurrency, some governments are looking for ways to control the crypto market. Countries like China and Indonesia have imposed outright bans, while others have proposed legislation to limit crypto. Such moves can have a negative impact on crypto value.
More recently, digital assets have proven vulnerable to global political and economic events. “Today’s macro and micro factors appear to be affecting crypto coin values as much as tech stocks,” says Zagari, but adds, “It’s too early to tell if this trend will continue in the future.”
In addition, inflation, rising interest rates and a possible correction in the labor market have caused some investors to tighten their wallets. Zagari says, “The temptation to liquidate your crypto holdings back into fiat might be attractive to some.” This scenario, he adds, could “increase selling pressure while delaying institutional adoption of cryptocurrencies,” leading to erosion of the crypto value would lead.
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