If you think the stock market has been kind to investors since the March 2020 bottom, take a gander at how handsomely cryptocurrency investors have been rewarded. As of the end of 2021, the aggregate value of all digital currencies had jumped more than 14-fold to about $2.2 trillion. That compares to gains of a little over 100% for the benchmark S&P 500 since the pandemic low.
Seemingly everything worked for crypto investors last year, including buying into blockchain projects that promoted decentralized applications, decentralized finance, and the metaverse. But one theme that worked outstandingly well in 2021 could find its way to the doghouse this year.
Below are three cryptocurrencies with a common theme that could crash in 2022.
Crypto investors couldn't stop buying Shiba Inu-themed coins in 2021. Image source: Getty Images.
Shiba Inu
The aforementioned theme to avoid this year is tokens inspired by the Shiba Inu dog breed. Not surprisingly, Shiba Inu (SHIB +1.93%) makes the list of cryptocurrencies that may crash in 2022.
To say that SHIB had an amazing 2021 would be an understatement. After beginning last year at $0.000000000073 per token, Shiba Inu finished with six fewer zeroes after its decimal point (about $0.000034). This equated to a gain of around 46,000,000%! It means an investment of a little over $2 at midnight to begin 2021 is all it would have taken to make an investor a millionaire.
Shiba Inu had a number of catalysts fueling these gains. For example, increased visibility helped grow the community beyond 1.1 million holders and improve liquidity. There was also the launch of decentralized exchange ShibaSwap in July. ShibaSwap is helping to improve liquidity and allows SHIB holders to stake their coins to earn passive income. Staking has been crucial to extending the average hold time of Shiba Inu coins.
I'd be remiss if I also didn't mention the role that the fear of missing out (FOMO) has played. Shiba Inu is one of the most-discussed cryptocurrencies on social media. A large, hyped-up community has created a strong confirmation bias that SHIB will head significantly higher.
However, there's plenty of evidence to suggest that Shiba Inu could head markedly lower throughout the year. For instance, online business directory Cryptwerk notes that only around 600 merchants accept SHIB as a form of payment. That's a very small number considering there are more than 500 million entrepreneurs worldwide.
Equally worrisome, Shiba Inu lacks truly differentiating characteristics in a space with 16,000 listed cryptocurrencies (and growing). It's an ERC-20 token built on the Ethereum blockchain, which means it struggles with the same high transaction fees that plague the popular Ethereum network. While the layer-2 Shibarium solution may alleviate some of these cost concerns, it's difficult to see how a payment coin like Shiba Inu stands out amid a flurry of intriguing blockchain projects.
Lastly, history hasn't been kind to payment coins after they hit their peak following life-altering short-term gains. My inclination is that SHIB will vastly underperform in 2022.
Image source: Getty Images.
Floki Inu
A second highly popular cryptocurrency that could crash in 2022 is Floki Inu (FLOKI +4.16%). This coin is named after the Shiba Inu named Floki adopted by Tesla CEO Elon Musk last year.
Aside from the nostalgia and social media hype of being a Shiba Inu-themed coin, FLOKI's allure in 2021 looked to be tied to its lofty white-paper aspirations. The white paper laid out three projects aiming to provide real differentiation in a crowded crypto marketplace. These projects include the formation of an education platform named Floki Inuversity, the development of a merchandise marketplace known as FlokiPlaces, and the creation of a non-fungible token (NFT) gaming metaverse known as Valhalla. Remember, anything having to do with the metaverse is extremely hot right now.
While this might all sound great on paper, achieving this lofty trio of goals won't be easy. Nevertheless, it hasn't stopped investors from giving FLOKI well over $1 billion in market value -- a valuation that makes little sense given how much the project has to prove.
Arguably the biggest issue with Floki Inu is that there aren't any tie-ins with Elon Musk. Although Musk's brother, Kimbal Musk, is working on the Million Gardens movement with Floki Inu to address world hunger issues, the world's richest person has no involvement in the project. Elon Musk is known to move cryptocurrencies with his tweets. On the other hand, Kimbal Musk doesn't have that sort of influence. It would appear that some investors may be misinterpreting some of the hype surrounding Floki Inu.
The other clear concern is that there's not a lot of real utility for FLOKI tokens. While the white paper does note a partnership with CryptoCart, which allows FLOKI to be accepted by 1,700 merchants, the actual number of merchants actively willing to accept FLOKI -- and not have a third-party merchant site exchange FLOKI into a fiat currency of choice -- is extremely small.
Until we see tangible advancements of these white-paper projects from the Floki Inu development team, it's a token to avoid.
Image source: Getty Images.
Dogecoin
The third Shiba Inu-inspired cryptocurrency that could crash in 2022 is Dogecoin (DOGE +3.00%).
Dogecoin has been predominantly lifted by two key catalysts. First, it has the full support of Elon Musk, who holds stakes in only three digital currencies, one of which is Dogecoin. The world's richest person has also previously tweeted that he's working with Dogecoin's development team to roll out upgrades that would significantly reduce transaction fees. It certainly doesn't hurt when one of the world's leading innovators is in your corner.
The other catalyst for Dogecoin has been a handful of brand-name merchant wins. For instance, Tesla recently began accepting DOGE for select merchandise, and movie theater chain AMC Entertainment is on track to accept DOGE sometime before the end of March.
However, like SHIB and FLOKI, Dogecoin lacks the real-world utility and competitive edge that will be required to give it staying power in a rapidly growing and competitive space.
The most glaring concern is that Dogecoin's transaction fees are markedly higher than most other popular payment coins. Additionally, Dogecoin's blockchain network doesn't process transactions all that quickly, nor can it be scaled up rapidly to handle a large influx of transactions.
For some context, data from BitInfoCharts.com shows that Dogecoin was averaging less than 20,000 daily transactions on its blockchain in September. Payment processor Visa can handle more than 20,000 transactions on its network in a single second.
To build on the theme of utility, Cryptwerk's data shows that only around 2,000 merchants worldwide are willing to accept DOGE as payment. That's a really small figure for a payment coin that's been in existence for more than eight years.
Even though it's retraced nearly 80% from its all-time high, look for Dogecoin to continue falling throughout 2022.
