It's certainly been a tale of two years for Wall Street. After losing a third of its value last year, the tech-centric Nasdaq Composite has rallied nearly 16% year to date, as of the closing bell on Feb. 7.
But this rally pales in comparison with what the cryptocurrency space has delivered in the new year. Thanks to sizable jumps in Bitcoin and Ethereum, the aggregate value of nearly 22,500 digital currencies has catapulted from approximately $795 billion to begin the year to $1.09 trillion, as of the very late evening on Feb. 7. That's a 37% increase in value in less than six weeks, for those of you keeping score at home.
While the technology and application of blockchain technology clearly has investors excited, not all cryptocurrencies are going to be winners. Despite a phenomenal start to 2023, the following three cryptocurrencies can be avoided like the plague in February.
Image source: Getty Images.
Shiba Inu
Consistent with every list of digital currencies to avoid that I've posted over the past 18 months, meme coin Shiba Inu (SHIB +0.23%) leads off.
On one hand, Shiba Inu delivered a historic return in 2021 that may never be topped by an investable asset. From the moment the clock struck midnight on Jan. 1, 2021, to the closing of the curtain on Dec. 31, 2021, SHIB tokens delivered a gain of around 46,000,000%! Shiba Inu showed the investment world just how powerful social-media-driven momentum can be in the crypto space. Unfortunately, social media buzz can only drive a digital currency's valuation so far.
At its core, Shiba Inu is nothing more than a payment coin -- it's an ERC-20 token built on the Ethereum network, to be more precise. Payment coins are a dime a dozen in the crypto arena. Worse yet, the popularity of Ethereum's network often leads to slower processing and high transaction fees.
CRYPTO: SHIB
Key Data Points
Shiba Inu's developers believe level-2 blockchain project Shibarium will resolve this issue. Shibarium is designed to reduce transaction fees, speed up processing times, and facilitate a gaming ecosystem that utilizes non-fungible tokens (NFTs). Just one problem: Shibarium's launch has been pushed back, and there's no clear timeline when it'll be ready for public beta testing. Shiba Inu's ecosystem can't be developed without a significant reduction in transaction fees.
In the meantime, SHIB isn't a particular popular payment option. A mere 720 merchants on online business directory Cryptwerk are currently accepting SHIB as a form of payment. Over the past 10 months, only 61 new merchants have added SHIB as a payment option.
What's more, history is most definitely not on SHIB's side. Short-term gains of 20,000% or greater in payment coins have historically been met by pullbacks ranging from 93% to 99%-plus in the roughly two years after their peak. Shiba Inu peaked in October 2021 and declined by as much as 91% before rebounding a bit. Following a 46,000,000% gain in 2021, the writing appears to be on the wall that further downside is expected.
CRYPTO: AXS
Key Data Points
Axie Infinity
The second cryptocurrency investors would be wise to avoid like plague in February is Axie Infinity (AXS +1.62%).
To be completely transparent, I believed Axie Infinity had a chance to be something truly special as recently as a year ago. The company's blockchain-based game, which features monsters known as "Axies" that users collect and battle to gain experience points, had what looked to be first-mover advantages. Data from TokenTerminal.com showed that between mid-July 2021 and mid-January 2022, Axie Infinity brought in over $1.2 billion in decentralized application (dApp) protocol revenue. While this was well behind Ethereum, it was one of a very small handful of crypto projects with dApp revenue above $500 million over this six-month stretch.
The attraction to blockchain-based gaming is that it puts users in control of their creations. Whereas characters created using traditional gaming consoles remain the property of the game developers, creations saved as NFTs on blockchain are owned by the player, and can be bought or sold in NFT marketplaces.
The issue for Axie Infinity is that NFT interest has absolutely plummeted. NFT sales in January 2023 came in just a hair shy of $1 billion, per Cryptoslam.io. While that's more than double September's NFT revenue, it's a far cry from the $17.2 billion in NFT trading volume in January 2022.
This drop-off in NFT trading volume can clearly be seen in Axie Infinity's dApp protocol revenue -- or should I say the lack thereof. After racking up more than $1.2 billion in dApp protocol revenue in a six-month stretch ended mid-January 2022, Axie Infinity has tallied just $2.94 million in dApp protocol revenue over the past 180 days, according to TokenTerminal.com.
With Axie Infinity's luster clearly gone, it looks like an easy avoid for crypto investors.
Shiba Inu-themed meme coins are avoidable investments. Image source: Getty Images.
Dogecoin
The third cryptocurrency to avoid like the plague in February is yet another meme token, Dogecoin (DOGE +0.00%).
The buzz surrounding Dogecoin has primarily been fueled by Tesla CEO Elon Musk. Musk has previously stated that he only owns three digital currencies, of which Dogecoin is one. Additionally, Musk has tweeted memes on multiple occasions that imply Dogecoin would "go to the moon." Considering Musk's social media influence and the role social media buzz can play in moving crypto markets, his presence was enough to catapult Dogecoin well over 20,000% in a six-month stretch in 2021.
CRYPTO: DOGE
Key Data Points
Unfortunately, Dogecoin suffers from the same problem as Shiba Inu -- it's just a glorified payment coin. Although Dogecoin's developers made meaningful progress to reduce the average cost of transactions on the network from around $0.50 in 2021 to between $0.05 and $0.10 over the past seven months, Dogecoin's utility hasn't increased. There are roughly 20,000 transactions daily on Dogecoin's blockchain, which is virtually unchanged from more than eight years ago.
It's the same story when examining Dogecoin's real-world utility via Cryptwerk. Though the 2,097 merchants that accept DOGE is nearly three times higher than Shiba Inu, it's still a paltry figure for a payment token that's been around for nine years. The vast majority of businesses accepting DOGE as payment are obscure online businesses.
What it ultimately boils down to is differentiation. There are a couple of financially focused crypto projects that provide near-instantaneous validation and settlement at a fraction of the transaction cost of Dogecoin. In other words, with the exception of the occasional meme from Elon Musk, Dogecoin offers nothing that helps it stand out from thousands of other payment coins. That makes DOGE entirely avoidable in February (and likely beyond).
