Dating back more than a century, there hasn't been a more consistent wealth creator than the stock market. While stocks don't outperform bonds, gold, or bank certificates of deposit every year, their average annual return has come in significantly higher than other asset classes over very long periods of time.
But over the past couple of years, a number of widely followed cryptocurrencies have lapped the broader market many times over.
Investors can't stop bidding up cryptocurrencies
The buzz surrounding digital currencies has taken on a life of its own. To begin with, the regulations surrounding cryptocurrencies, and the many exchanges that allow digital currency trading, are relatively minimal. One of the key selling points of pushing toward blockchain-backed digital tokens is the lack of government involvement.
Furthermore, there's a clear buy bias when it comes to cryptocurrencies. In order to bet against popular cryptos, short-sellers (investors who bet against a security) often having to jump through hoops and purchase derivatives, such as futures. Virtually all of the more than 12,700 investable cryptocurrencies don't have derivatives available for pessimists to purchase or bet against. Without short-sellers to aid with price discovery, there's a clear buy bias.
Cryptocurrency investors are also excited about the longer-term prospects for blockchain technology in both the payments space and in non-payment applications.
On the payments side, blockchain-executed transactions have the potential to validate and settle cross-border transactions in mere seconds. Comparatively, existing financial infrastructure can hold up the validation and settlement process on cross-border payments for up to a week.
As for nonfinancial applications, blockchain technology could help reduce supply chain paper trails, which would be a welcome sight given the current cargo ship backups in ports around the world.
These digital tokens have delivered jaw-dropping returns
Ultimately, this excitement concerning the evolution of payments and nonfinancial blockchain applications has sent a number of popular digital currencies higher by a four, five, or even six digit percentage since their debuts. Still, this pales in comparison to two cryptocurrencies, which have returned over 5,000,000% and just shy of 7,700,000,000% (that's 7.7 billion percent) since their debuts.
Shiba Inu: 5,041,076% gain
Shiba Inu (SHIB 0.34%) is a self-proclaimed meme coin that's been nothing short of unstoppable since making its trading debut on Aug. 1, 2020. Capped at 1 quadrillion coins (not a typo!), Shiba Inu could be scooped up for $0.00000000051 per token on its debut day, according to data from CoinMarketCap.com. But as of this past weekend, a single Shiba Inu coin was going for $0.00002571. Though nominally cheap, this works out to a gain of more than 5 million percent in about 14.5 months.
SHIB's stratospheric gains look to be coming on the back of crypto investors' love for pet-themed coins. As many folks probably know, the Shiba Inu dog breed was also the inspiration behind Dogecoin, which has gained better than 76,000% since its trading debut in December 2013.
To build on this point, Shiba Inu is drawing momentum from Tesla CEO Elon Musk, who recently adopted a Shiba Inu-breed dog named Floki and has tweeted about him on a handful of occasions. For Musk to move the crypto market with a tweet is nothing new.
The launch of decentralized exchange ShibaSwap three months ago has also played a role in increasing the buzz surrounding SHIB. ShibaSwap allows investors to stake their coins to earn interest. More importantly, this staking process could encourage SHIB owners to hang onto their investment for longer periods of time, thereby reducing wild vacillations in its price.
While there's no denying these gains are amazing in such a short time frame, my suspicion is it won't last. For starters, Shiba Inu lacks real-world utility. According to online business directory Cryptwerk, only 88 mostly obscure businesses worldwide accept SHIB as a form of payment. For context, there are well over 500 million entrepreneurs worldwide, as well as more than 32 million businesses in the U.S. alone.
What's more, data from crypto exchange and ecosystem Coinbase shows that the average holding period for Shiba Inu is just six days. This suggests traders are in control here and they're out to make a quick buck. Without clear fundamental catalysts -- sorry, Elon Musk's Floki tweets aren't "clear fundamental catalysts" -- it's hard to see how SHIB hangs onto this monumental run higher.
Bitcoin: 7,698,609,900% gain
If you think Shiba Inu's gains are jaw-dropping, the gains for Bitcoin (BTC -0.09%) since its very early trading days are nothing short of life-altering. Bitcoin had a starting price in July 2010 of $0.0008 per token (that's eight-hundredths of a penny). On Oct. 16, it cost $61,588.88 to purchase a single token. That's a gain of close to 7.7 billion percent in a little over 11 years.
To put this into some perspective, you could have purchased the equivalent of 12,500 Bitcoin in July 2010 for $10, assuming no transaction fees. That $10 investment would be worth $769,861,000, as of Oct. 16, assuming you didn't sell.
The "why" to "Why Bitcoin?" has a lot to do with both its first-to-market advantage and its perceived scarcity. Bitcoin was the first cryptocurrency to trade and be exchanged for goods, and its coin supply is capped at a relatively low 21 million. With mining rewards halving every four years, it'll take until approximately 2140 before all Bitcoin have are "minted."
Additionally, Bitcoin is benefiting from an improved use case. On Sept. 7, 2021, El Salvador became the first country to adopt Bitcoin as legal tender. This move piggybacks on a broader trend of Bitcoin acceptance among more businesses worldwide.
But there are just as many reasons to be skeptical of the world's largest cryptocurrency. For example, Bitcoin's scarcity should come with an asterisk. Instead of physical scarcity, computer algorithms are all that define Bitcoin's token supply. Community consensus has the ability to change things. Even though it's unlikely, the chance of Bitcoin's token supply rising isn't 0%.
Bitcoin is also being constantly diluted by the introduction of new tokens and blockchain projects. The have been numerous generations of blockchain projects that have come along which are, frankly, better than Bitcoin. As a payments network, Bitcoin's blockchain is costlier and takes longer to validate and settle transactions than many other popular payment-focused coins.
While I won't deny Bitcoin's first-mover advantage, I still see limited utility, false scarcity, and no true payment advantages, relative to its peers.