For well over a century, the stock market has stood on a pedestal above other asset classes. Even though the stock market won't outperform bonds, commodities, or housing every year, the average annual return of stocks over the long run handily outpaces that of bonds, commodities, and housing.
But things are drastically different in the short run. Over the past two years, cryptocurrencies have run circles around the stock market. Whereas the benchmark S&P 500 slightly more than doubled from its March 2020 pandemic low, the aggregate value of digital currencies has skyrocketed by a factor of 15!
But just because the cryptocurrency market value is soaring, it doesn't mean all digital currencies are investment-worthy. The following trio is a perfect example of cryptocurrencies that should be avoided like the plague in April.
Last year, Shiba Inu (SHIB 0.48%) was the hottest cryptocurrency on the planet and it delivered a truly jaw-dropping return of close to 46,000,000% (not a typo). But in April, as in virtually every month since hitting its all-time high of $0.00008841 in late October, Shiba Inu tops the list of digital currencies to avoid like the plague.
If there's a positive, it's that Shiba Inu has more catalysts at work in 2022 than it did last year. Developers are privately testing layer-2 blockchain Shibarium at the moment, which should drastically lower transaction fees when it's launched publicly. Once Shibarium is launched, Shiba Inu's developers can focus on its non-fungible token (NFT)-based gaming ambitions and rolling out its own version of a metaverse.
While this might sound great, there is no shortage of reasons for investors to be highly skeptical of SHIB. To begin with, it's not yet clear when Shibarium is going to launch or if this layer-2 upgrade will work as intended. NFT-based gaming can't move forward until transaction costs come way down.
Even more worrisome is Shiba Inu's lack of competitive advantages and lasting differentiation. SHIB is nothing more than an ERC-20 token built on the Ethereum blockchain. Put another way, it's nothing more than a payment coin -- and there's nothing particularly special about a payment coin. It's not riding any first-mover advantages, and its blockchain doesn't offer an edge over other blockchain-based or traditional payment solutions.
Interestingly, Shiba Inu isn't even a useful payment coin. Data from online business directory Cryptwerk shows that only 648 merchants accept SHIB as a form of payment. That's a drop in the bucket compared to more than 500 million global entrepreneurs.
If you need one more reason to keep your distance, consider that life-altering gains from payment coins and protocol tokens in the crypto arena almost always lead to equally large reversions. With SHIB gaining as much as 121,000,000% on an intra-year basis in 2021, a massive pullback likely awaits over the next 12 to 24 months.
Although it's mostly been off the radar in 2022, a recent spike higher in Dogelon Mars (ELON) (that's pronounced "Dog-a-lon") puts it squarely back on the radar as a digital currency that should be avoided like the plague.
As a general rule, investors should be highly skeptical of tokens that aim to ride the coattails of other successful coins. In Dogelon Mars' case, it's aiming to ride the success of meme coin Dogecoin (DOGE -0.09%) while capitalizing on the interplanetary vision of Tesla CEO Elon Musk. In other words, the entire project appears to be focused on social media buzz words and the hope that hype will propel ELON beyond the moon.
Before its front-page mission statement was taken down last year, Dogelon Mars was viewed as the first interplanetary currency. It also pledged to send ELON to victims of rug pulls and scams. A "rug pull" is an event where developers of a cryptocurrency abscond with investors' money. While this previous mission statement sounded noble, the need for an interplanetary currency seems to be a long way off.
In fact, the need for ELON as a payment coin looks to be a stretch in itself. Despite some digging in late December and again in late March, I still can't find a list of merchants willing to accept ELON as a form of payment. With the exception of trading Dogelon Mars on a handful of crypto exchanges, ELON has no use case.
Not to sound like a broken record, but history isn't Dogelon Mars' friend. Just as Shiba Inu is facing a hefty reversion, so is Dogelon Mars after gaining more than 1,800% in the past six months. Without any tangible catalysts, ELON is likely to repeat its performance from April through June of last year that saw the token skyrocket, then subsequently lose 97% of its value.
The third cryptocurrency to avoid like the plague in April is yet another Shiba Inu-inspired highflier, Dogecoin.
Before Shiba Inu captivated the crypto landscape, Dogecoin galloped higher by roughly 27,000% in a six-month stretch between early November 2020 and early May 2021. This rally was fueled by speculation of increased payment adoption and the support of Elon Musk. Dogecoin happens to be one of three digital currencies Musk owns, and he's not been shy about promoting Shiba Inu-themed memes to demonstrate his love for Dogecoin on Twitter. Tesla has even begun accepting payment in Dogecoin for select merchandise.
But Dogecoin has a number of fatal flaws. Like Shiba Inu, it's nothing more than a payment coin that lacks a competitive edge and differentiation. While there's been plenty of social media buzz to support short-term pumps in DOGE, its blockchain network doesn't offer anything unique that consumers looking to pay with crypto couldn't find elsewhere.
Additionally, Dogecoin's use case is almost nonexistent. Though it landed a brand-name merchant with Tesla, only 2,048 merchants worldwide accept DOGE as a form of payment, per Cryptwerk. While that's over three times as many merchants as SHIB, it's taken over eight years for Dogecoin to reach this mark.
To add, Dogecoin's blockchain has seen virtually no uptick in usage over the past three years. Average daily transactions continue to cover hover between 20,000 and 30,000 per day, according to BitInfoCharts.com. Even as Dogecoin's transaction fees have dropped, usage of the token has remained low.
Lastly, DOGE runs into the same issue as Shiba Inu and Dogelon Mars when it comes to historic precedence following life-altering gains. DOGE has already lost about 80% from its all-time high. However, when I examined the performance of multiple payment coins, I found their reversions typically ranged from 93% to 99% following their respective peaks. In other words, Dogecoin still has plenty of downside left.