For well over a century, the stock market has been the premier wealth-building machine. Even though it doesn't outpace bonds or commodities every year, its average annual gain over the very long run is unmatched when compared to other asset classes.
But over the past couple of years, it's cryptocurrencies that have run circles around the stock market. Since the March 2020 pandemic low, the benchmark S&P 500 has come close to doubling. Meanwhile, the aggregate value of all digital currencies has soared 1,250% to $1.9 trillion.
However, not all digital currencies will end up as winners. The following three cryptocurrencies are perfect examples of tokens that should be actively avoided like the plague in March, and possibly well beyond.
Shiba Inu-themed coins were red-hot in 2021. Image source: Getty Images.
Shiba Inu
The first cryptocurrency to avoid in March (and beyond) is one of the most popular digital currencies of the past year: Shiba Inu (SHIB -1.31%). This meme coin galloped higher by more than 46,000,000% in 2021.
The buzz behind Shiba Inu has to do with increased visibility, growing support and hype on popular social media platforms, and the expected launch of a number of upgrades and/or new Shiba Inu ecosystem features over the coming months and years. Concerning the latter catalyst, Shiba Inu's developers aim to launch a layer-2 blockchain upgrade, known as Shibarium, relatively soon. Shibarium is designed to significantly lower transaction fees, which'll pave the way for Shiba Inu to launch non-fungible token (NFT)-based gaming in 2023.
Despite these positives, there remain three core reasons to avoid Shiba Inu following its historic run-up in 2021. For starters, history tells us that life-altering short-term gains in the crypto space rarely last. When I examined the performance of payment coins and protocol tokens following monster short-term gains, I found that virtually all of them gave back 93% to 99%+ of their value in the 12 months to 26 months following their peak. With Shiba Inu gaining as much as 121,000,000% on an intra-year basis in 2021, I'd have to think a massive reversion awaits.
Second, even though Shiba Inu has successfully rallied support from holders on social media, confirmation bias isn't a lasting competitive advantage. The reality is that SHIB is nothing more than an ERC-20 payment coin built on the Ethereum blockchain. It lacks the functionality and differentiation that'll be necessary to stand out in an increasingly crowded space.
And third, Shiba Inu isn't a particularly compelling payment coin option. Online business directory Cryptwerk lists 641 mostly obscure online merchants as accepting SHIB for payment as of the beginning of March. Comparatively, there are well over 500 million entrepreneurs worldwide. With virtually no real-world use, SHIB is an easy pass for investors.
Image source: Getty Images.
Monero
The second cryptocurrency to avoid like the plague in March is a token I highlighted years ago as being intriguing: Monero (XMR 0.25%).
Monero is what's known as a privacy coin. Typically, cryptocurrencies use unchanged signatures when verifying transactions, which makes it, in theory, possible to track down the sender and receiver of a payment. Monero, on the other hand, uses ring signatures and stealth addresses, which effectively obfuscates the sender and receiver of payments. Monero's developers believe that all individuals sending and receiving payments using XMR (Monero's protocol token) deserve the same privacy protections without the risk of others finding out about their spending habits.
Although the idea behind privacy coins remains intriguing many years later, it does have its drawbacks -- especially now.
For example, the Russia-Ukraine war has led many organizations and nations to impose economic sanctions on Russia. One of the potential ways around these financial sanctions is to use cryptocurrencies -- specifically privacy coins. This will almost certainly cause regulators to take an even closer look at payment obfuscation in the crypto space.
However, investors should understand that privacy coins were being monitored with a discerning eye long before this latest conflict. Privacy coins have been tied to illicit activity on the dark web for years, and as such have been banned from trading on a number of popular cryptocurrency exchanges. That's made increasing visibility and usage difficult for the likes of Monero.
Although average daily transactions on Monero's blockchain have grown from around 4,000 to 20,000 over the past three years, this amount of activity still pales in comparison to the likes of Bitcoin or Ethereum. Considering what's going on globally at the moment, Monero is a token to shy away from.
Image source: Getty Images.
Dogecoin
The third cryptocurrency to avoid like the plague in March is the other extremely popular meme coin, Dogecoin (DOGE -1.86%). Last year, Dogecoin was the most-searched digital currency in the U.S.
Like Shiba Inu, Dogecoin's ascent was propelled by increased visibility and a growing community that wasn't shy about pumping DOGE on social media platforms and message boards. Dogecoin has also received a boost from Tesla Motors' CEO Elon Musk, who owns a small position in DOGE. Musk has previously tweeted that he'd be working with Dogecoin's developers to improve the efficiency of its blockchain network.
While betting on Elon Musk has historically been a smart move, Dogecoin offers a number of reasons for investors to keep their distance. Among them is the fact that Dogecoin lacks competitive advantages and differentiation. DOGE is nothing more than a payment coin, and not a particularly good one at that. Even with upgrades designed to lower its transaction fees to make DOGE more competitive, the number of transactions completed daily on its blockchain has stagnated since mid-2014 at around 20,000.
To build on this point, Cryptwerk notes that only 2,040 global merchants accept DOGE as a form of payment. While that's three times as many merchants as SHIB, it's taken Dogecoin more than eight years to reach this mark. When it comes to real-world utility, Dogecoin won't get holders very far.
Dogecoin is also likely to suffer the same fate as other high-flying payment coins. As I described with SHIB, payment coins that deliver life-altering gains usually give back most of those gains after hitting their respective peaks. Dogecoin topped out at $0.73 in May 2021 and has given back as much as 85% since then. Without any differentiation, a push below $0.10 should be expected.
