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In a rapidly changing market, look for differentiated projects. And invest with humility.

Last week, we launched an Avalanche ETP. A lot of people have asked me: Why? After all, Avalanche is only the 24th-largest crypto asset and one of more than 400 Layer 1 blockchains, according to CoinMarketCap.

There are two parts to the answer. The first has to do with Avalanche itself. The second involves an investing principle I’d consider one of the most important for any crypto investor.

Let me explain.

Part 1: How Avalanche Changes the Thesis of Crypto Investing

Investing in Layer 1 Blockchains

Avalanche is a Layer 1 blockchain, like Ethereum and Solana.

As the name suggests, Layer 1 blockchains are the base layer on which most other crypto activity exists. With the notable exception of Bitcoin, every major crypto project—every stablecoin, tokenization effort, DeFi app, and smart-contract platform—relies on a Layer 1 blockchain to function. Every time you issue a stablecoin or trade a tokenized asset, you pay a small fee to the Layer 1 network supporting that activity.

I have a strongly held belief that, as stablecoins and tokenized assets grow, hundreds of trillions of dollars of assets will ultimately exist, trade, and settle on these networks. If I'm right, it's easy to imagine the underlying networks becoming quite valuable.

But which ones?

You might think: I'll just buy the leader. Ethereum is by far the largest Layer 1, with a market cap of $279 billion and a dominant share of stablecoin activity. There's a good chance Ethereum is a long-term winner.

But concentrating your bets on an early technology is risky. Facebook wasn't the first social network. Google wasn't the first search engine. (AltaVista, anyone?)

Alternatively, you might think: Just buy them all. Honestly, not a bad strategy. Programmable Layer 1 networks collectively carry a market cap just below $500 billion. I suspect that number eventually will reach the trillions. Buying them all would capture the total market opportunity.

But what if you can do one better? What if you could focus on a select few that seem to have the most realistic chance of winning?

That's where Avalanche fits in.

A Different Approach to Building a Layer 1

What's attractive about Avalanche is that it takes a genuinely different approach to building a Layer 1 blockchain compared to market leaders like Ethereum and Solana.

Ethereum and Solana are singular blockchains. If you build on them, you adopt their rules. Ethereum offers some customization through “Layer 2” networks that build on top of it, but you largely inherit the main network's rules and security model.

Avalanche is different. Avalanche is a blockchain of blockchains. Any firm or entity can build its own blockchain on Avalanche—setting its own rules, whitelisting specific users and validators, and customizing its experience. If a major bank wants to run a blockchain that meets certain regulatory requirements, it can launch its own Avalanche Layer 1. If a gaming company or a government wants to experiment, it can do the same.

It seems plausible that, as more regulated entities enter crypto, many will want to do so on their own terms, with their own rules, their own validators, and their own compliance standards. Avalanche facilitates that, and it’s finding real traction. Real-world assets tokenized on Avalanche are up 950% year-over-year to $1.3 billion, and the network counts BlackRock, Apollo, Toyota, the State of Wyoming, and FIFA among its partners.

Does any of that guarantee Avalanche will succeed? Definitely not. But it has a unique seat at the table and a real shot at a very large market. With a current market cap of just $4 billion, we think that's an interesting bet.

Part 2: Investing With Humility

The Layer 1 space is early and growing fast. At this stage, anyone telling you they know exactly how it plays out is lying. Bitwise has more than 200 people working in crypto, studying the space around the clock, and we don't know for sure.

In that environment, I’d argue the prudent move is considering the most differentiated projects with genuinely unique designs. That starts with Ethereum, Solana, and XRP, and also includes Avalanche. That's why we launched the ETP.

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For those interested in knowing more, Bitwise Onchain Solutions—our in-house staking and DeFi vaults division—just put out a fantastic guide to Avalanche. It’s detailed but remarkably easy to read. I highly recommend it.

Risks and Important Information

No Advice on Investment; Risk of Loss: Prior to making any investment decision, each investor must undertake its own independent examination and investigation, including the merits and risks involved in an investment, and must base its investment decision—including a determination whether the investment would be a suitable investment for the investor—on such examination and investigation.

Crypto assets are digital representations of value that function as a medium of exchange, a unit of account, or a store of value, but they do not have legal tender status. Crypto assets are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies, stocks, or bonds.

Trading in crypto assets comes with significant risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks and risk of losing principal or all of your investment. In addition, crypto asset markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

Crypto asset trading requires knowledge of crypto asset markets. In attempting to profit through crypto asset trading, you must compete with traders worldwide. You should have appropriate knowledge and experience before engaging in substantial crypto asset trading. Crypto asset trading can lead to large and immediate financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price.