If you think Wall Street has delivered some impressive gains since the pandemic lows of March 2020, take a closer look at how well the cryptocurrency market has fared. Whereas the S&P 500 has gained close to 89% in a little over 26 months, the aggregate value of all digital currencies has skyrocketed 830%, or about $1.17 trillion.
Although crypto has been profitable for many investors since the pandemic bottom, not all cryptocurrencies will necessarily be winners over the long run. In other words, what's popular isn't always going to be profitable.
Will these popular coins head to the moon or end up in a perpetual swoon? Image source: Getty Images.
There are three highly popular digital currencies that have been pummeled of late, which is undoubtedly drawing the attention of crypto enthusiasts: meme coin Shiba Inu (SHIB 0.65%), Terra Classic (LUNC +0.05%), and Terra (LUNA 1.26%). The $64,000 question is: Which one, if any, is the best buy right now?
The case for and against Shiba Inu
Arguably, no cryptocurrency did more to lure in new investors last year than Shiba Inu (SHIB). That's because it delivered a historic gain of 46,000,000%. (Not a typo!) Increased visibility and liquidity that came with new crypto exchange listings, coupled with an inability for skeptics to short-sell or bet against SHIB, created the perfect momentum-driven train.
The single biggest catalyst for Shiba Inu is the expected launch of level-2 blockchain project Shibarium. Because Shiba Inu is an ERC-20 token built on the Ethereum blockchain, it's subject to the same high transaction fees and processing lags that can occasionally plague the Ethereum network. The successful launch of Shibarium would dramatically reduce transaction fees and roll out the red carpet for non-fungible token (NFT)-based gaming. Low transactions are necessary to fuel NFT marketplace transactions.
CRYPTO: SHIB
Key Data Points
On the other side of the coin, Shiba Inu's biggest knock is that it lacks anything resembling a competitive edge or differentiation. While some enthusiasts might claim its huge social media following is an advantage, interest in cryptocurrencies has ebbed and flowed for years.
At its core, Shiba Inu is nothing more than a payment coin -- and not even a very good one. As of May 31, only 659 merchants, per online business directory Cryptwerk, accepted SHIB as a form of payment. Nearly 20% of these "merchants" are nothing more than crypto services. This implies that only 500 mostly obscure businesses worldwide accept SHIB.
What's more, payment coins that deliver life-altering gains in the crypto space are historically met with equally epic reversions. At its intrayear peak in 2021, SHIB was higher by more than 121,000,000%. Even following a more than 85% pullback, Shiba Inu could have much further to fall.
Image source: Getty Images.
The case for and against Terra Classic
As recently as four weeks ago, TerraClassicUSD (USTC 3.33%), formerly TerraUSD, and its native token Terra (now known as Terra Classic) were respectively the fourth-largest stablecoin and fourth-largest token by market cap. Then the wheels fell off the wagon.
Normally, stablecoins offer mammoth staking yields for patient investors (up to nearly 20% for USTC at one point) and are backed by fiat currencies. TerraClassicUSD wanted to be different and relied on an algorithm to maintain a peg to the U.S. dollar. Without getting overly technical, Terra (now LUNC) would be minted or burned to keep the one-dollar peg intact. It worked for years...until it didn't.
A little less than four weeks ago, a large seller or group of sellers unstaked more than $2 billion in USTC and sold a substantial portion, causing it to de-peg from the dollar. Because USTC is, by rule, exchangeable for one-dollar's worth of Terra (now LUNC), this created an arbitrage opportunity that led to a cascade effect for both tokens. The algorithm simply couldn't keep up, and what's now known as Terra Classic cratered.
If there's a case to be made for Terra Classic, it's simply that high trading volume and the nostalgia for a widely owned token could lead to wild swings in its value, including to the upside. The crypto space has been home to multiple five- and six-digit percentage gains in short time frames.
On the other hand, with TerraClassicUSD, a completely broken stablecoin with no fiat backing, Terra Classic effectively serves no purpose. To boot, the Terra blockchain associated with TerraClassicUSD and Terra Classic faced a halt in the wake of this unprecedented volatility and collapse.
Image source: Getty Images.
The case for and against Terra (LUNA)
Following the collapse of stablecoin TerraClassicUSD and native token Terra Classic, Terraform Labs CEO Do Kwon announced plans to rebrand the ecosystem and launch a new native blockchain token that would be known as (drum roll)...Terra (LUNA). Not confusing at all, right? (Insert eye roll here.) Take note that this new Terra token doesn't have a tethered stablecoin like its predecessor.
The new Terra launched a week ago, and it was given a rude welcome by crypto investors. Less than a day following its launch, LUNA cratered by more than 80%. At the time of this writing on May 31, it has bounced more than 100% from its lows but is still close to 60% below its initial list value.
The hope for Kwon is that investors will forgive, and eventually forget, the Terra Classic collapse that cost investors around $60 billion at its peak. Ideally, the hard fork that gave birth to Terra 2.0 is expected to fuel development of decentralized applications (dApps) and decentralized finance apps on the Terra blockchain.
On the flip side, trust has been completely broken between Terra investors and Do Kwon. Having been burned once, it's unclear how many of the self-proclaimed LUNAtics are going to stick around. Even though holders were airdropped new LUNA tokens, some -- including billionaire Mark Cuban -- have expressed no interest in investing in the new Terra chain.
Image source: Getty Images.
Survey says...?
Now that we've had a closer look at the promise and peril attached with each popular but beaten-down cryptocurrency, let's circle back to the important question at hand: Which, if any, of these coins is the better buy?
My blunt answer is none of them.
Although Shiba Inu had an exceptional year in 2021, there's nothing about the project that, in my view, supports a $6.4 billion valuation. There won't be enough coin burn to meaningfully push SHIB higher, and history continues to be its worst enemy.
Terra Classic is worth avoiding for the simple reason that it no longer serves a purpose. Do Kwon forked to a new Terra chain, essentially abandoning TerraClassicUSD and Terra Classic. Although Terra Classic could enjoy technically driven rallies, there won't be any lasting substance behind these moves.
As for Terra (LUNA), there are serious trust issues that need to be addressed. Until Do Kwon can demonstrate that what happened last month will never happen again, I don't see the LUNAtics profiting.
However, if I were to choose one of these three cryptocurrencies to decline less than the others, I'd count on the practical utility of dApps to possibly put a floor under Terra (LUNA). I simply don't see the same floor under Shiba Inu or Terra Classic.
