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In the world of cryptocurrencies, valuation is a difficult discussion to have. That is partly because most crypto projects don’t have cash flows or earnings to base their valuation upon. Accordingly, finding undervalued cryptos (or overvalued cryptos, for that matter) isn’t easy.
However, there are some ways investors can value these projects. And given the decline in this sector, it is clear valuations have come down. Most major crypto projects have seen year-to-date declines of 50% or more. Thus, from a relative standpoint, these tokens are cheaper than they were late last year. For long-term investors looking for upside potential, that’s a good thing.
However, determining the projects that carry significant upside potential is harder to do. There are thousands of crypto projects out there, each with their own technology and niche. Thus, in this depressed market, it’s hard to gauge where the growth will come from, particularly if few projects are growing due to capital outflows.
That said, during the next bull market, I think there are some projects that could carry significant upside. Here are three of my top picks in this regard:
Top Undervalued Cryptos: Axie Infinity (AXS-USD)
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Certainly a higher-risk, higher-upside option on this list, Axie Infinity (AXS-USD) is a project that has grown in popularity. Inspired by popular games like Tamagotchi and Pokémon, Axie Infinity saw impressive usage last year. In terms of non-fungible token- (NFT) based games, Axie Infinity remains by and large the leader. This game allows users to breed, collect, battle, trade and raise token-based creatures called Axies.
Like other projects, Axie Infinity has seen the value of its in-game tokens decline. Accordingly, monthly active user and daily active user numbers are down. That said, this game remains very popular among a cohort of hard-core gamers, and certainly boasts the potential to rebound during the next recovery. At least, those who invested heavily in this game hope so.
Should the market turn around, the utility Axie Infinity provides could provide significant upside potential. While metaverse-related options in the stock market are also getting hit, those with a long-term view of this space may view Axie Infinity as a project that is worth slowly easing into a position. This is a project that is on my radar for this reason.
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Chainlink (LINK-USD) is a decentralized oracle network used to pair off-chain data with the blockchain. Among the various data sets, Chainlink helps connect crypto projects to all-important price feeds. Indeed, for exchanges and many other projects, these are necessary to ensure the proper functioning of these decentralized applications.
Developers pay Chainlink a fee for their technology in the form of LINK tokens, making Chainlink a unique project. That’s because Chainlink has quasi-revenue and cash flows from which investors can analyze.
A beneficiary of continued decentralized application growth, Chainlink benefits from increased developer interest and overall ecosystem growth among many projects and exchanges. As this growth has slowed, the price of LINK tokens has headed on a downward trajectory.
That said, should the crypto market rebound, this is a token with an attractive valuation I’m going to take a harder look at.
Top Undervalued Cryptos: The Sandbox (SAND-USD)
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Like Axie Infinity, The Sandbox (SAND-USD) is another metaverse game based on the blockchain that is worth checking out. Alongside its metaverse-linked peers, The Sandbox has been hit hard lately. What was a previous “digital land rush” has turned into crickets, with many investors steering clear of this space.
That’s the high-level argument, at least. Various corporations continue to pile into The Sandbox as a virtual world to display their wares. Indeed, corporate adoption is one key element I see as a long-term driver for this project. The more companies and institutions that view The Sandbox as the “real estate of the future,” the more this vision can become possible.
Right now, I think The Sandbox and other virtual real estate options are at a turning point. It will be interesting to watch how engagement spikes or declines in this space. Truth be told, I’m not 100% sold on The Sandbox’s offering as better or worse than its competition. However, I do see the potential with this platform if the market gets on board. This is a longer-shot pick, but one I think investors looking for big upside will want to keep on the radar right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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