Despite losing nearly 70% of its aggregate value over the past seven months, the crypto market has run circles around the stock market in recent years. Since the March 2020 pandemic lows, the benchmark S&P 500 has increased by 70% through June 14, 2022. By comparison, the total value of all digital currencies is higher by 562% in the same time frame.
However, not all cryptocurrencies are poised to be winners over the long term. History has pretty consistently shown that even the hottest next-big-thing investments have companies or securities that get left in the dust.
At the moment, there are three ultra-popular cryptocurrencies that have been decimated over the past couple of months: meme coin Dogecoin (DOGE -1.01%), the newly rebranded Terra Classic (LUNC 0.39%), and the "new" Terra (LUNA -1.29%). The prevailing question is: Which, if any, of these extremely popular coins is the best buy?
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The pros and cons of buying Dogecoin
Despite being taken to the woodshed, Dogecoin remains a fringe top-10 digital token by market value.
Arguably the biggest reason investors are excited about Dogecoin is its ties to Tesla CEO Elon Musk. Musk only holds stakes in three cryptocurrencies, and Dogecoin is one of those three. He's been a very clear advocate of the project, with tweets suggesting that he'd work with developers to improve the network. Musk, who's become known as the "Dogefather" within the Dogecoin community, even mentioned Dogecoin during a skit while hosting Saturday Night Live in May 2021.
On the other hand, there are quite a few reasons to be highly skeptical of Dogecoin. At its core, it's nothing more than a payment coin, and there's nothing special about payment tokens. Just 2,058 worldwide merchants accept DOGE as a form of payment, according to the online business directory Cryptwerk. And close to a quarter of these "merchants" are nothing more than crypto services, which aren't true retailers. The summation point is that Dogecoin has virtually no utility in the real world.
To make matters worse, despite Dogecoin's transaction fees plunging over the past year, activity on its blockchain network has fallen to more than a three-year low, according to data from BitInfoCharts.com. Whereas Dogecoin was averaging closer to 40,000 transactions daily in 2020 (i.e., when its transaction fees were considerably higher), a typical day on its blockchain network is now closer to 20,000 transactions. The proof is in the pudding that Dogecoin isn't gaining traction as a digital payment option.
As a final note, payment coins have a terrible track record after delivering life-altering gains in a short time frame. It's quite common for payment coins to lose 93% to 99%+ of their value in the two years following their peak.
The pros and cons of buying Terra Classic
It might be hard to believe, considering Terra Classic now changes hands at fractions of a penny, but this widely owned token was the fourth-largest cryptocurrency by market cap as recently as seven weeks ago. Since then, somewhere close to $60 billion in value has evaporated.
Previously, Terra Classic was known as just Terra, and it was the native token for stablecoin TerraClassicUSD (USTC 0.25%), which at the time was known as "TerraUSD." The lure of TerraClassicUSD was that it would offer investors willing to stake their coins annual yields of up to 20%. To maintain its peg to the U.S. dollar, Terra would be minted or burned based on an algorithm. Note that using an algorithm rather than fiat currencies for backing was a revolutionary concept -- and one that ultimately failed.
In May, more than $2 billion worth of what's now known as TerraClassicUSD was unstaked, and a considerable portion of it sold. This de-pegged TerraClassicUSD from the dollar and caused a cascade effect that took down the entire Terra ecosystem. Today, an almost unfathomable 6.54 trillion LUNC coins are in circulation.
If there's a reason to be optimistic about Terra Classic, it's that a lot of previous owners are in the same boat and counting on a technical bounce after a historic drubbing. Since most cryptocurrencies lack the fundamental catalysts that act as valuation drivers for stocks, social media momentum and a large community can occasionally be enough to send digital tokens higher.
To add, there's the expectation that coin burn will reduce LUNC's enormous token supply, thereby making each remaining coin that much more valuable.
Conversely, the biggest issue with Terra Classic is that it no longer serves a purpose. With TerraClassicUSD completely de-pegged, there's arguably no future for the once-popular LUNC.
Image source: Getty Images.
The pros and cons of buying Terra (LUNA)
Lastly, there's the "new" Terra coin, which has also been called "Terra 2.0." When the TerraUSD stablecoin imploded and what's now Terra Classic no longer served a purpose, Terraform Labs CEO Do Kwon announced that a new project would launch (via a hard fork), which wouldn't be tethered to a stablecoin. This new token, which usurped the Terra name and LUNA symbol from its predecessor, was airdropped to a combination of LUNC holders, developers, and TerraUSD holders about three weeks ago.
If there's a prevailing catalyst for the new LUNA coin, it's the potential for decentralized application (dApp) development on the Terra blockchain. Without getting too far into the weeds, smart contract-driven dApps are viewed as the most exciting aspect of blockchain technology. Since they're decentralized, there is no controlling entity, and all records are immutable and public. In theory, dApps have the potential to significantly drive down transaction fees over time while dramatically improving the security and transmission of currency and data.
But there are two sides to this coin.
The glaring issue with the new Terra is that it's essentially a mulligan designed to save face with a community that rightly believes it's been wronged. Trust is a very hard thing to rebuild in the investing community, especially just weeks after the company's core project imploded.
Additionally, without a stablecoin as a catalyst, it's not entirely clear what the future holds for LUNA or how it'll be utilized.
The verdict
Now that we've examined the pros and cons attached to each of these highly popular cryptocurrencies, it's time to circle back to the key question at hand: Which, if any, is the better buy?
This may not come as a surprise, but I wouldn't suggest buying any of them. Instead, I'd look at this as an exercise of which coin offers the least downside potential.
In my view, Dogecoin has no definable floor. It's simply a payment coin, which isn't going to help it stand out among nearly 20,000 other cryptocurrency projects. Tokens that lack a competitive edge and differentiation are a dime a dozen and offer no lasting value for investors. DOGE has shed 93% of its value since Elon Musk's SNL appearance, and it could just as easily fall another 93% in the coming years.
The same can be said for Terra Classic. Although it has a large and passionate group of holders, there's nothing of true substance behind any of its moves. Even burning billions of tokens is unlikely to make a dent with north of 6.5 trillion coins in circulation. There simply isn't a floor for LUNC.
If I had to choose which token offers the least downside among these three, it'd be the new LUNA coin. Even though it could take a really long time for Terraform Labs and Kwon to rebuild trust with the crypto investing community, it's also plainly evident that Terraform plans to focus its attention and efforts on Terra 2.0. If dApp developers don't abandon ship, LUNA would appear to offer the highest floor among these three tokens; albeit take that statement with a gigantic grain of salt.
