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2 Toxic Cryptocurrencies to Sell Right Now

By Will Ebiefung – Oct 31, 2021 at 8:15AM

Key Points

  • Shiba Inu is soaring. But as with all bubbles, someone will be left holding the bag.
  • Dogecoin faces a double-pronged threat of weak fundamentals and intensifying competition.

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Shiba Inu and Dogecoin are showing several red flags that could leave investors badly burned.

October has been a spectacular month for meme cryptocurrencies as two of the market's most hyped-up assets soared to eye-watering levels. Shiba Inu (SHIB -5.01%) and Dogecoin (DOGE -3.08%) are up 40% and 1,000%, respectively, over the last 30 days. But without compelling fundamentals to justify the bull run, investors should consider taking profits before this bubble bursts. 

1. Shiba Inu 

Founded in August 2020 by an anonymous developer called Ryoshi, Shiba Inu token is carefully designed to exploit popular dog memes on the internet. But despite its meteoric 60,000,000% rise since inception, the coin's lack of competitive advantages and speculative investment community could put it at risk for a spectacular crash. 

Shiba Inu breed of dog

Image source: Getty Images.

Shiba Inu's October rally has little fundamental support. According to Fortune magazine, the surge in buying may have started when Tesla's CEO Elon Musk tweeted a picture of his recently adopted shiba inu puppy on October 4. Later, a push for the tokens to be added to Robinhood's Market's crypto exchange helped boost demand. 

But despite the hype, Shiba Inu doesn't bring much that's new to the table from a technical perspective. It is one of over 460,000 ERC20 tokens that function on the Ethereum blockchain. And that means it will face Ethereum's challenges, such as low transaction capacity (13 per second), without having the strong brand and development team that keep Ethereum's native token (ether) relevant despite its technical shortcomings. 

According to the Coinbase exchange, Shiba Inu investors typically hold the token for just 11 days -- in contrast to Bitcoin and Ethereum's average hold times of 83 and 80 days, respectively. This data suggests many Shiba Inu buyers are looking for a quick flip instead of a long-term investment. And the token's high turnover could accelerate its decline if market sentiment sours. 

2. Dogecoin 

Dogecoin prices have soared 154,700% since the currency's inception in 2013. And the once-satirical asset now boasts a market cap of $40 billion. But with increasing competition from rival meme coins and comparatively weak fundamentals, it will struggle to maintain its lofty valuation. 

Unlike Shiba Inu, which is programmed on the Ethereum network, Dogecoin is a stand-alone blockchain. Transactions are validated through a proof-of-work system in which miners solve computational problems to mint new coins (Ethereum and Shiba Inu also use this system). But unlike newer cryptos, Dogecoin is not designed to allow users to create complex autonomous programs called decentralized applications (dApps). 

The coin is geared toward being a store of value and medium of exchange. But it is poorly suited to those roles because of its inflation and volatility. 

The supply of Dogecoin currently stands at 132 billion with the number programmed to increase by 5 billion annually -- forever. This will dilute the coins' worth over the long term if demand doesn't increase to match inflation. And although Dogecoin's typical 55-day holding time on Coinbase is significantly higher than Shiba Inu's 14 days, the coin has a track record of extreme volatility, which makes it unsuitable as a medium of exchange because it exposes merchants to high exchange-rate risk. 

The greater fool theory 

The greater fool theory is an investing concept that suggests you can profit by buying an overvalued asset because someone else (the greater fool) will buy it for more in the future. Shiba Inu and Dogecoin fit into this paradigm because their relatively weak fundamentals don't mesh with their massive valuations.

And while speculation can lead to epic returns in the short term, eventually, the greater fool may be the last fool. Don't be left holding the bag when the bubble finally pops. 

 

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ethereum and Tesla. The Motley Fool has a disclosure policy.

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