One of the world's top-performing cryptos this year is most likely one you've never heard of. Conflux (CRYPTO: CFX) is up an incredible 1,800% this year and is now close to breaking into the list of the top 50 cryptos by market cap. Trading at a price of just $0.45, Conflux now ranks as the 51st largest crypto, with a total market capitalization of $1.1 billion.
So why are investors going crazy over Conflux? After all, Conflux is not a metaverse crypto, and it's not a hot new AI crypto token. While Conflux might not be leveraged to one of these hot tech trends, it offers a similar type of massive growth opportunity: China. In short, Conflux is a scorching hot Chinese blockchain project, and that comes with a unique set of risks and rewards.
The Chinese blockchain opportunityThe best way to think about Conflux is that it is China's answer to Ethereum (CRYPTO: ETH), and that makes it valuable for developers and technologists looking to build the blockchain economy in China. Conflux originally launched at Beijing's Tsinghua University, which is often referred to as "China's MIT." As a result, a lot of very smart people are behind this project, including Dr. Andrew Yao, who won the Turing Award, the computing world's version of the Nobel Prize, back in 2000. The Conflux team claims it has a blockchain consensus mechanism called Tree-Graph that is far more powerful and efficient than other consensus mechanisms, such as the proof-of-stake mechanism Ethereum uses.
The real reason Conflux is skyrocketing off the charts, though, is that it has very rapidly become a "public blockchain" in China. In practical terms, that means it has the blessing of the Chinese government, and that is profoundly important. Conflux can continue to develop without undue intervention from the state, and it can work with top Chinese tech companies. Case in point: Conflux just signed a deal with China Telecom for blockchain-based SIM cards. And it also signed a deal with Xiaohongshu, or Little Red Book, the "Instagram of China," for non-fungible tokens (NFTs).
So it's easy to see why there's so much momentum and excitement around Conflux. This might just be a once-in-a-decade investment opportunity. You can invest in a Chinese blockchain leader at a time when nobody's heard of it, and when it's trading for less than $1. Better yet, Conflux says it's going to be a bridge between East and West, enabling collaboration and interoperability of blockchain projects all over the world. So the potential growth opportunity for Conflux is not just limited to China.
Geopolitical and regulatory riskHowever, the source of this crypto's biggest reward is also the source of its biggest risk. It's impossible to talk about Conflux without also talking about China, and that's a problem. Remember, we have a little crisis brewing over in Taiwan, and if that situation ever escalates into a full-blown war, it could be game over for any investment opportunities related to China.
Moreover, there's something about Chinese technology companies that the U.S. government doesn't like. Look at the example of Huawei Technologies, a top Chinese 5G telecom company, which the U.S. government accuses of being a front for the Chinese Communist Party. Huawei is now banned from the United States. Or what about TikTok, the popular Chinese social media app that members of Congress are now trying to ban in the United States?
If you decide to invest in Conflux, regulatory risk is something you need to consider. Right now, Conflux is not on the radar of U.S. regulators, but Binance, the cryptocurrency exchange founded in China, is. From my perspective, the writing is on the wall for any Chinese crypto or blockchain project trying to expand to the U.S. market.
Is Conflux a buy?So the big positive for Conflux is "access to China blockchain growth." But the big negative is the potential geopolitical and regulatory risk involved. From my perspective, the potential upside is simply not worth the risk of having the value of your asset fall to zero if regulators decide to go after it.
Granted, the mathematics of investing in Conflux over the short term are certainly enticing. What other cryptos are capable of delivering tenfold returns in a matter of months? But it's important to keep in mind the long-term story here. For any serious amount of money, I'd rather invest in Ethereum and put my full faith in Vitalik Buterin and his team to stay one step ahead of any new blockchain innovations coming out of China.
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Dominic Basulto has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum. The Motley Fool has a disclosure policy.