Shiba Inu (SHIB +2.12%) skyrocketed to an all-time high in October, rising more than 153,000,000% from its 52-week low on Nov. 28, 2020. However, the meme token has since lost nearly half of its value, showcasing how quickly the tide can turn when dealing with volatile crypto assets, especially those backed by hype.
Of course, some investors may see this as a buying opportunity, but I would exercise caution. The odds of Shiba Inu delivering an encore performance are slim, to say the least. More importantly, there are over 7,500 other cryptocurrencies to consider, and many of them look like much better long-term investments.
Here's what you should know.
Image source: Getty Images.
The case against Shiba Inu
Let's get right to it. Shiba Inu lacks utility. Yes, it's an ERC-20 token, a type of smart contract built on the Ethereum blockchain, which theoretically means it's compatible with a wide array of decentralized applications (dApps) and decentralized finance (DeFi) products. But in practice, Shiba Inu has not been incorporated into Ethereum's thriving ecosystem, and I don't think that will change.
Why? There is simply nothing special about Shiba Inu -- unless you count its popularity, but popularity makes for a poor investment thesis. Hundreds of other Ethereum-based tokens exist, and many actually have compelling use cases. For instance, Dai is a stablecoin that aims to track the U.S. dollar, which allows investors to participate in DeFi products without exposing themselves to extreme volatility.
Still not convinced? There's another big reason to avoid Shiba Inu. Its market value currently sits at $23.6 billion, making it the twelfth-largest cryptocurrency. But the top 10 unique Shiba Inu addresses own 64% of that wealth. If just a few of those investors decide to dump their Shiba Inu tokens, its value would implode. And at some point, those people are going to cash in.
The case for Avalanche
Avalanche (AVAX +1.41%) is a programmable blockchain, meaning it's designed to support smart contracts. If you're new to crypto, smart contracts are just computer programs that execute under predefined conditions. In the context of the cryptocurrency market, smart contracts are typically managed and executed by blockchains or distributed ledgers on a global scale. More importantly, they are the digital brains that power dApps and DeFi products.
Why does that matter? Blockchain technology underpins a financial system that functions without a central authority. In the context of DeFi, that means people can borrow, trade, lend, and save money without going through a bank or brokerage. And by eliminating those intermediaries, DeFi products promise to cut costs and reduce friction associated with traditional financial services. That's a compelling value proposition.
Of course, Avalanche wasn't the first blockchain to support smart contracts. Ethereum wears that crown, and with approximately $175 billion invested in DeFi products, the Ethereum blockchain is also the largest DeFi ecosystem by a wide margin. But since launching in 2020, Avalanche has quickly risen to fourth place, and now boasts $12.7 billion of capital locked in its DeFi products. More importantly, the platform has an edge that could propel it higher.
Specifically, Avalanche is the fastest blockchain-powered smart contract platform. The network has been benchmarked at 4,500 transactions per second (TPS), but it could potentially achieve 20,000 TPS with a few tweaks. Crypto enthusiasts familiar with Solana may argue that their favorite blockchain network supports 50,000 TPS. That's true, but Solana's time to finality (i.e., the time required for a transaction to be irreversibly added to the blockchain) ranges between 13 seconds and 46 seconds, depending on the source. But Avalanche transactions often achieve finality in less than one second.
Why does this additional speed matter? The Ethereum blockchain handles just 14 TPS, creating a serious scalability issue. In other words, widespread adoption of Ethereum DeFi products could overwhelm the system, resulting in slower transactions and higher transaction fees (because those fees are determined by the demand for resources on the blockchain). In other words, Avalanche is far more scalable than Ethereum.
That brings us to the investment thesis. DeFi products aren't free. Miners and validators must be compensated for their services, so users pay transaction fees using the blockchain's native cryptocurrency. That means, as DeFi products on the Avalanche blockchain become more popular, more people will have to buy the cryptocurrency. Wider adoption should cause its price to rise. That's why Avalanche could make you richer in the long run, as developers embrace its ultra-fast smart contracts platform.
