What a difference a year makes. Following a scorching-hot 2021 for the cryptocurrency space, the combined value of more than 21,000 digital currencies sank by $1.4 trillion, or nearly 64%, to $795 billion in 2022. With equities plunging into a bear market and cryptocurrencies failing to decouple from the stock market, this highly volatile asset class has been clobbered.
Unfortunately, an encore performance could be in the works for the new year. While a number of crypto projects have demonstrated promise, other popular digital currencies are nothing short of investment land mines. What follows are five cryptocurrencies to avoid like the plague in 2023.
Shiba Inu-themed coins plunged in 2022, and an encore performance may be in the works. Image source: Getty Images.
Shiba Inu
The first cryptocurrency to avoid at all cost in the new year is arguably the hottest digital currency of 2021: meme coin Shiba Inu (SHIB 0.92%). Between midnight on Jan. 1, 2021, and its intraday peak on Oct. 27 of the same year, SHIB tokens rallied more than 121,000,000%. Put another way, if you had invested $1 in Shiba Inu the moment 2021 began, you were a millionaire less than 10 months later. By year's end, SHIB coins had ended higher by approximately 46,000,000%.
But 2022 was a different story for this retail-investing hero. At points throughout the year, SHIB retraced more than 90% from its all-time high of $0.00008841. Chances are that 2023 will bring more of the same.
The biggest issue for Shiba Inu is that it lacks anything resembling a competitive advantage or differentiation. It's an ERC-20 coin built on the Ethereum blockchain, which is a fancy way of saying that it's effectively nothing more than a payment coin.
There are countless digital currencies that could, in theory, be used for payments, if merchants would allow for it. To boot, it's not even a popular payment option, with the number of merchants accepting SHIB stalling in the mid-600s throughout most of 2022, according to data from online business directory Cryptwerk.
Another issue for Shiba Inu is that its catalysts have fallen flat. The public domain test of level-2 blockchain solution Shibarium, which is designed to lower transaction fees and accelerate the development of blockchain-based gaming, failed to materialize in 2022. Further, interest in non-fungible tokens (NFTs) has fallen off a cliff. NFTs are the lifeblood of blockchain-driven gaming, which puts a damper on Shiba Inu's gaming and metaverse ambitions.
History has also been incredibly unkind to payment coins that deliver life-altering gains over a short period. It's not uncommon for payment coins to retrace in excess of 99% over a two-year stretch following a monumental gain. My suspicion is SHIB is still a long way from reaching its bottom.
CRYPTO: LUNC
Key Data Points
Terra Classic and TerraClassicUSD
The second and third cryptocurrencies to avoid like the plague in 2023 are Terra Classic (LUNC +0.37%), the digital currency that was once known as Terra, and TerraClassicUSD (USTC +3.48%), which had previously been known as TerraUSD. These two coins are being lumped together because they're linked at the hip.
Prior to May 2022, these two cryptocurrencies appeared revolutionary and surefire. TerraClassicUSD was a stablecoin offering yields of up to 20% that was pegged to the U.S. dollar. Meanwhile, Terra Classic, the native token for TerraClassicUSD, was being minted or burned based on an algorithm to help TerraClassicUSD maintain its peg. It all worked great -- until it didn't.
Over $2 billion in TerraClassicUSD was unstaked in early May, which caused TerraClassicUSD to unpeg and led to the minting of trillions of Terra Classic tokens. In a matter of days, more than $60 billion in market value was lost, and a seemingly surefire money machine for crypto yield farmers went up in smoke.
The TerraClassic community continues to create social media buzz based on the idea that brokerages listing LUNC will implement a burn tax that'll reduce the max supply of close to 6.9 trillion tokens. But even burning billions of coins won't have an impact with a max token supply this large.
The bigger problem is that TerraClassicUSD has de-pegged and its native coin Terra Classic no longer serves any purpose. With all blockchain work now revolving around the new Terra, Terra Classic and TerraClassicUSD are shell investments, with nothing to back their value.
CRYPTO: FTT
Key Data Points
FTX Token
The fourth cryptocurrency to avoid like the plague in the new year is the native token of the FTX crypto exchange, FTX Token (FTT 0.56%).
If you follow cryptocurrency news, you're likely well aware of the collapse of FTX, the third-largest digital currency trading platform, based on volume. FTX officially filed for bankruptcy on Nov. 11, 2022.
As I've noted, the details surrounding the collapse of FTX are still being pieced together. What we do know is that serious accounting errors were made, and that customer funds appear to have been used by Alameda Research, an affiliate of FTX, for aggressive investment purposes.
FTX CEO Sam Bankman-Fried looks to have completely failed in his fiduciary responsibilities, with his company having far too little in liquid assets to cover his company's liabilities. Bankman-Fried was arrested three weeks ago and faces a litany of charges in the U.S.
The key point I'm getting at is that the FTX Token, similar to Terra Classic and TerraClassicUSD, no longer serves any purpose. With FTX bankrupt and the company expected to spend who knows how long trying to make good for its more than 1 million creditors, FTX Token has nothing tangible to support its value. While it's possible social media buzz could support minor pops here and there, I'd expect FTX Token to eventually track toward $0, given that its purpose and backing are now gone.
Image source: Getty Images.
Dogecoin
The fifth and final cryptocurrency to avoid like the plague in 2023 is the other ultra-popular Shiba Inu dog-themed meme coin from 2021, Dogecoin (DOGE 0.12%).
Dogecoin's popularity primarily derives from its association with Tesla and Twitter CEO Elon Musk. The former richest person in the world owns only three digital currencies, of which Dogecoin is one. Previously, Musk has posted tweets implying Dogecoin could go to the moon, and has noted that he'd work with developers to improve the efficiency of Dogecoin's blockchain network. It is worth noting that Dogecoin's transaction fees have been significantly reduced since Musk became involved.
However, Dogecoin, like Shiba Inu, is nothing more than a payment coin. It offers nothing in the way of competitive advantages, which means it has no way to stand out when compared to countless other blockchain-driven payment projects.
To build on this point, daily transaction data from BitInfoCharts.com shows that Dogecoin's transaction fee reduction has had no impact on its utility. Approximately 20,000 transactions were completed daily on Dogecoin's blockchain during December 2022, which is roughly where things stood back in late 2014.
To put this into some context, payment kingpin Visa can process up to 24,000 transactions per second using its traditional network. That means Visa is handling in one second what Dogecoin's blockchain does in a full day.
Likewise, merchant acceptance of Dogecoin on Cryptwerk has stalled over the past year. Translation: There's little or no excitement for merchants when it comes to adopting/accepting DOGE as a form of payment.
Lastly, DOGE falls into the same category as SHIB when it comes to payment coins getting drubbed following life-altering gains. Although it's down around 90% from its all-time high set in May 2021, a lack of tangible catalysts could easily send this popular cryptocurrency markedly lower in 2023.
