Over the long run, the stock market has run circles around all other asset classes, based on average annual return. But things look quite different if the lens is narrowed. Over the past two years, it's cryptocurrencies that have left stocks eating their dust.
Whereas the benchmark S&P 500 has gained more than 90% since bouncing off of its COVID-19 pandemic low in March 2020, the aggregate value of all digital currencies has soared from $141 billion to more than $1.8 trillion. That's a gain of close to 1,200%, for those of you keeping score at home.
While there's a lot of excitement surrounding blockchain technology, smart contracts, non-fungible tokens (NFTs), and blockchain-based gaming, not all cryptocurrencies are going to be winners. What follows are three digital currencies investors would be wise to avoid like the plague in May.
Image source: Getty Images.
Shiba Inu
The first cryptocurrency to avoid in May is a token you might as well pencil in as a fixture on this list as long as its market value remains in the billions of dollars: Shiba Inu (SHIB 3.61%).
Last year, Shiba Inu was unstoppable. From midnight on Jan. 1, 2021 to the closing bell at the end of the year, SHIB delivered gains of around 46,000,000%. It's quite possible we'll never see single-year gains like this duplicated ever again.
CRYPTO: SHIB
Key Data Points
The rush to Shiba Inu in 2021 was fueled by social media buzz -- it was one of the most-searched digital currencies last year -- and a flurry of crypto exchanges listing it for trade. The launch of decentralized exchange ShibaSwap in July helped as well. Since this launch, which improved liquidity and allowed SHIB holders to stake their coins to earn passive income, the median hold period for Shiba Inu tokens has soared.
But there's another side to this story. The single biggest issue with Shiba Inu is that it lacks the competitive advantages and differentiation needed to stand out with more than 19,000 cryptocurrencies listed on CoinMarketCap.com. At its core, Shiba Inu is nothing more than a payment coin built on the Ethereum blockchain. Even if layer-2 blockchain project Shibarium launches successfully, it doesn't change the fact that Shiba Inu is still a payment coin -- and there's nothing game-changing about a payment coin.
There's also a lot of hope with little substance built into Shiba Inu's expectations. For instance, developers are building a blockchain-based game, and intend to sell digital plots of land, known as "Shiba Lands," in its own version of the metaverse. None of this can occur until Shibarium launches and transaction fees are significantly reduced. Put another way, Shiba Inu investors have to wait while other NFT and metaverse projects beat it to the punch.
If you need one final reason to avoid SHIB, consider this: History has shown that life-altering gains in payment and protocol tokens often result in reversions totaling at least 93% (or more) in the 26 months following their respective peaks. With SHIB gaining a peak of 121,000,000% on an intra-year basis in 2021, it looks due for a massive reversion.
Image source: Getty Images.
ApeCoin
A second cryptocurrency to avoid like the plague in the month of May is the highly popular and newly released ApeCoin (APE +0.01%).
Initially, ApeCoin was distributed to owners of the Bored Ape Yacht Club (BAYC) and Mutant Ape Yacht Club (MAYC) via an airdrop, but it can now be found on multiple crypto exchanges. If BAYC and MAYC sound familiar, it's because they're affiliated with some of the priciest NFTs that have been sold. A number of celebrities have spent big bucks to purchase BAYC NFTs.
CRYPTO: APE
Key Data Points
ApeCoin's primary purpose is to provide a fungible bridge to introduce gaming. It was recently announced that ApeCoin will be the primary token for Otherside, a metaverse gaming project from Yuga Labs that launched on April 30, 2022. Yuga is the creative entity behind BAYC. With some analysts believing the metaverse has multi-trillion dollar potential, early metaverse gaming launches are drawing a lot of buzz.
While there's plenty of promise with the metaverse, there's also a lot that's unknown. In particular, Yuga hasn't divulged much about Otherside prior to its release. The vast majority of metaverse projects are going to take a lot of time to mature, especially as investments are made in the infrastructure that supports these 3D virtual worlds. In short, APE and Otherside are unlikely to be an instant hit.
To add to the above, it's a bit of a head-scratcher that existing metaverse-based gaming projects like Decentraland (MANA 4.46%) and The Sandbox (SAND 3.94%) are worth less than ApeCoin. While I'm not saying Decentraland and The Sandbox are necessarily the end-all when it comes to digital land purchasing and metaverse interactions, it's a bit strange that a little-known metaverse project (Otherside) and its protocol token (APE) are worth more than the well-known and established Decentraland and Sandbox.
Perhaps more worrisome is the fact that interest in NFTs has rapidly cooled. Through the first week of March, search interest in the term "NFT" sank 68% from where it began the year, according to Google Trends. To rub salt in the wound, the NFT buyer of Twitter co-founder Jack Dorsey's first tweet received just a $280 top bid after previously paying $2.9 million for it.
Until ApeCoin demonstrates tangible value and utility, it's not worth buying.
Image source: Getty Images.
Dogecoin
Keeping with the meme coin theme, the third cryptocurrency to avoid like the plague in May is Shiba Inu-inspired Dogecoin (DOGE 4.19%).
Long before Shiba Inu was the talk of Twitter, Dogecoin was dazzling crypto investors with jaw-dropping returns. Between early November 2020 and early May 2021 (i.e., the day Elon Musk appeared on Saturday Night Live as the "Dogefather"), Dogecoin delivered a return of more than 27,000%!
CRYPTO: DOGE
Key Data Points
Dogecoin holders appear to be excited about the potential for increased utility, especially with Musk, a Dogecoin holder, agreeing to buy Twitter for $44 billion. Although there's nothing tangible to tie the acquisition of Twitter to increased Dogecoin usage, it's difficult to ignore Musk's previous tweets and memes that effectively "pumped" Dogecoin as a viable payment token.
But Dogecoin wouldn't be on this list if it had a bright future. As I pointed out above, there's nothing particularly special about payment coins. Potentially thousands of crypto projects could act as payment tokens. This will make it incredibly tough for Dogecoin to stand out over the long run.
Another glaring issue for Dogecoin is that it's not even a popular payment coin. According to online business directory Cryptwerk, Dogecoin has amassed only 2,058 merchants worldwide that accept it as a form of payment. Mind you, this figure has been built up over more than eight years. Even as Dogecoin's transaction fees have declined, the number of average daily transactions on its blockchain network haven't grown over the past three years. For some context, payment processor Visa is capable of handling the same amount of transactions Dogecoin processes daily in about one second.
Although Dogecoin was the most-searched cryptocurrency in the U.S. last year, there's nothing about this payment coin to suggest it has game-changing potential. What's far likelier is that Dogecoin reverts more than 90% from its $0.73 high set in May 2021.
