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While Bitcoin (CRYPTO: BTC) has been the star of the crypto market in 2023, that doesn’t mean that other cryptocurrencies aren’t keeping pace. In fact, if you take a look at CoinMarketCap’s list of the Top 50 cryptos ranked by market cap, it’s possible to discover a handful of bargain-priced cryptos that offer a unique mix of value and huge upside potential.

My top cheap crypto right now is Optimism (CRYPTO: OP), which is up 42% year to date. There are two very good reasons why Optimism, which is still trading for around $1 right now, could make for a low-cost, high-upside way to diversify your crypto portfolio. Let’s dig in.

The Ethereum connection

Optimism is a Layer 2 scaling solution for Ethereum (CRYPTO: ETH). What this means in practical terms is that Optimism helps Ethereum run faster, cheaper, and better. You can think of the Layer 2 blockchain as sitting on top of the core Layer 1 blockchain (Ethereum).

Using Optimism, transactions can be bundled up and processed in bulk, and that helps to reduce a tremendous amount of congestion on the Ethereum blockchain. Even after its transformative Merge, which shifted the cryptocurrency from a proof-of-work model to a proof-of stake model, Ethereum continues to rely on these Layer 2 scaling solutions to ensure stable, steady growth.

Image source: Getty Images.

That’s a big reason why I think Optimism is such a fantastic long-term investment opportunity. The future growth of Optimism is directly leveraged to the future growth of Ethereum, the world’s second-largest cryptocurrency. If you think that the best is yet to come for Ethereum, then Optimism is going to go along for the ride. Every time the Ethereum blockchain ecosystem expands, it represents another opportunity for Optimism to expand.

Open source as a growth catalyst

What really sets Optimism apart is something called the OP Stack. This is a standardized, shared, open source development stack. It enables developers anywhere in the world to create their own Layer 2 blockchain using Optimism technology. Blockchains built using the OP Stack can then be connected to the Optimism Superchain — a vast, interoperable network of blockchains.

As a result, companies and organizations around the world can capitalize on the power and flexibility of open source technology from Optimism in order to launch new blockchain projects. The best example to date is cryptocurrency exchange Coinbase Global (NASDAQ: COIN), which recently used the OP Stack to build its new Base blockchain. Within one day of going live this August, Base had over 100,000 daily active users. And Worldcoin, the new cryptocurrency project from ChatGPT founder Sam Altman, recently migrated its blockchain infrastructure over to Optimism.

Competitive landscape

The big caveat is that the Layer 2 space is getting crowded these days. Within the list of the Top 50 cryptocurrencies by market capitalization, there are five different Layer 2 scaling solutions: Polygon, Arbitrum, ImmutableX, Mantle, and Optimism. All of them do essentially the same thing — they help Ethereum run faster, cheaper, and better by bundling up and processing transactions.

Moreover, all of this competition means there is now significant debate over which Layer 2 has the best technology. This may be over-simplifying things, but when it comes to blockchain transactions, there are really only two things that matter: speed and cost. If other Layer 2 solutions are cheaper or faster than Optimism, it makes sense that they could eventually gain market share at Optimism’s expense.

Should you buy Optimism?

By investing in Optimism, you get access to the current growth happening on Ethereum. You also get access to the future upside potential from Optimism’s open source initiative (i.e. OP Stack and Superchain). As Optimism continues to add high-profile partners like Coinbase, that will make it even more attractive to build on top of Optimism. In June, Binance (CRYPTO: BNB), the largest cryptocurrency exchange in the world, made headlines when it announced it was launching its own Optimism Layer 2 blockchain project using OP Stack.

Investing in cryptocurrencies can be risky and highly volatile, which is why it’s important to understand the risk-reward profile of any crypto. From my perspective, Optimism has the right mix of risk and reward at a very attractive entry price, which is why I’m bullish on this crypto both short-term and long-term.

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Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.

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