If you think the stock market has made big gains since the March 2020 pandemic lows, take a closer look at the cryptocurrency space. While the benchmark S&P 500 has tacked on gains of just over 100% in two years, the aggregate value of digital currencies has risen by more than $2 trillion over the same time frame, which works out to an increase of 1,430%!
As you might imagine, the Big Two, Bitcoin and Ethereum (ETH -2.71%), have received a lot of credit for this more than $2 trillion nominal increase. But it's lesser-known coins like Shiba Inu (SHIB -6.36%) that have been driving buzz in the cryptocurrency space throughout much of the past year.
Shiba Inu-inspired coins soared in 2021. Image source: Getty Images.
Shiba Inu could quickly go from "hot" to "not"
One of the easiest ways to garner attention is to deliver a truly historic return. Between the stroke of midnight on Jan. 1, 2021 and Shiba Inu's intra-day high on Oct. 27, SHIB tokens rose by more than 121,000,000%. That's not a typo. If someone happened to invest $1 at midnight on Jan. 1, 2021, they were a millionaire by October 27. Shiba Inu ultimately finished 2021 higher by approximately 46,000,000%.
These historic gains were a function of crypto market dynamics -- i.e., significantly fewer avenues to short/bet against lesser-known digital currencies -- increased visibility, social media buzz, and the launch of decentralized exchange ShibaSwap. The latter introduced staking and encouraged investors to hold onto their SHIB for a considerably longer time period.
But all is not what it seems with Shiba Inu. Despite its hefty $14.5 billion market cap, this hot digital currency is full of red flags.
For example, Shiba Inu is truly nothing more than a payment coin. It's an ERC-20 token built on the Ethereum blockchain. Though Ethereum is a trusted network that's seen increased usage over the past five years, transaction costs on Ethereum are significantly higher than all other cryptocurrencies. Without any competitive advantages or differentiation, it's going to be almost impossible for Shiba Inu to stand out over the long run.
To boot, SHIB isn't even a particularly attractive payment coin. Aside from its currently high transaction fees, just 652 global merchants were accepting SHIB as payment, as of April 1, according to online business directory Cryptwerk.
The final red flag is that life-altering gains in payment coins have historically been met with equally epic reversions following their peaks. The payment coins I've followed that have delivered short-term gains of 20,000% or more have virtually all retraced by 93% to 99%+ in 26 months or less following their respective peaks. This all bodes poorly for one of the world's hottest digital currencies.
Image source: Getty Images.
Buy these cryptocurrencies in a heartbeat over Shiba Inu in April
Instead of putting your money to work in what's effectively become a buzz-driven meme coin without any competitive advantages, the following two cryptocurrencies, which offer competitive advantages and differentiation, would be much smarter buys.
Algorand
The first cryptocurrency investors can confidently buy in a heartbeat over Shiba Inu in April is Algorand (ALGO -2.88%). Protocol token ALGO clocks in as the 28th-largest digital currency by market cap ($6.4 billion).
In a sea of payment coins and dead-end blockchain projects, Algorand stands out for a variety of reasons. To begin with, Algorand's blockchain offers superior speed and scalability. The average time to block finality (i.e., how long transactions take) is about 4.4 seconds, with the project's website touting transactions per second (TPS) north of 1,100 late last year. To put these figures into some context, Bitcoin and Ethereum take approximately 60 minutes and six minutes to reach block finality, and they can only handle seven and 14 TPS, respectively. It's no wonder Algorand advertises itself as the future of decentralized finance.
Algorand's blockchain network also offers a level of security that most proof-of-stake (PoS) consensus networks can only aspire to. Algorand relies on the pure proof-of-stake, or PPoS, consensus mechanism. With PPoS, users are randomly and secretly chosen to vote on proposals and propose blocks. With PoS, it's possible for small holders to potentially disrupt the network. With PPoS, this becomes virtually impossible, especially given that ALGO holders have an incentive to see the project succeed.
Additionally, Algorand's developers have placed a big emphasis on interoperability. The idea here is that there are numerous individual blockchain-driven projects being developed globally. While some of these blockchain networks may be compatible with each other, many won't be. Algorand is focused on helping enterprises bridge these gaps so that blockchain-based financial solutions can become mainstream.
There are clear-cut advantages and differentiation to what Algorand offers, which makes it a far more intriguing investment opportunity than Shiba Inu.
Image source: Getty Images.
Avalanche
The second cryptocurrency to buy in heartbeat over Shiba Inu in April is Avalanche (AVAX -8.11%). The AVAX protocol token slots in as the 10th-largest digital currency by market cap ($28.3 billion), which is five spots ahead of SHIB.
Not to sound like a broken record, but when there are more than 18,000 cryptocurrencies (and growing), it's imperative that projects offer well-defined competitive advantages and lasting differentiation. Avalanche offers this via the speed and scalability of its network, as well as its compatibility.
If you thought Algorand's average transactional finality of 4.4 seconds was fast, you're going to love Avalanche. Whether you're sending money, files, or data, the average time it takes to go from Point A to B is less than two seconds. Keep in mind that cross-border payments using existing financial infrastructure can take up to a full week to validate and settle.
Equally important is the scaling potential of the Avalanche blockchain network. Developers previously touted the networks' ability to handle 4,500 TPS. To put this into perspective, payment processor Visa can handle up to 24,000 TPS. However, this 4,500 TPS figure claimed by Avalanche is per subnet -- and the creation subnets is limitless. In other words, there shouldn't be any scaling issues that adversely affect the Avalanche network.
But the biggest buzz surrounding Avalanche has to do with its smart contract-based blockchain network. Smart contracts being the protocols that verify, facilitate, and enforce the negotiation of a contract between two parties.
In particular, Avalanche aims to be a go-to destination for developers wanting to build decentralized applications (dApps). Although Ethereum is currently the most-popular dApp-building destination, Avalanche has the Ethereum Virtual Machine (EVM) running on its blockchain. The EVM is the software developers use to build dApps on Ethereum. Since Avalanche can offer better scaling, faster execution, and lower transaction fees than Ethereum, it's likely we'll see dApp protocol revenue pick up big-time moving forward.
