Remember 2021, when crypto investors were convinced that investing a few hundred bucks in a cute, dog-themed meme coin would make them millionaires overnight? Well, the same type of speculative meme coin mania that fueled the rise of Shiba Inu (SHIB -3.91%) could be making a comeback as we head into 2024.
The newest dog-themed meme coin is Bonk (BONK -10.36%), which is up an absolutely ridiculous 10,000% this year. Bonk now has a $1.2 billion valuation, and some crypto insiders are predicting that Bonk will soon pass Shiba Inu in market cap. Although Bonk's recent performance is certainly impressive, there are two big reasons you should be cautious about investing in what some are citing as the next Shiba Inu.
Coin supply issues
If there's one lesson that should have been learned from the last bout of meme-coin mania, it's that the total circulating supply of a coin matters. Meme coins can get big fast by creating a seemingly unlimited supply when they launch. With a large enough supply, you can pump up the valuation of a meme coin to over $1 billion, even with a ridiculously low price. And that $1 billion valuation immediately gives an aura of credibility to the coin, especially for naive investors who might be new to crypto investing.
Image source: Getty Images.
That is the fundamental problem of Shiba Inu -- it has an outrageously large circulating coin supply of 589 trillion. This absurd coin supply explains why the price of Shiba Inu continues to hover around the $0.00001 mark. It's almost mathematically impossible for Shiba Inu to reach the $1 mark because that would imply an outlandish market valuation of $589 trillion. So Shiba Inu is forced to burn coins as fast as it can, in the hopes of reducing the circulating supply significantly.
Bonk seems to have the same problem, which explains why it is trading for the cartoonishly low price of $0.00002. The coin supply of Bonk is 60 trillion, which is orders of magnitude higher than it should be. In comparison, the coin supply of rival meme coin Dogecoin (DOGE -2.90%) is 142 billion. So, if you plan on investing in Bonk, just be aware that it will likely have the same problems as other meme coins unless it finds a way to reduce the supply.
Where is the utility?
It almost seems unfair to beat up on a fun dog-themed meme coin, especially around the holidays. I feel like the Grinch, abusing poor, loyal Max. But here's the ugly truth: Bonk offers no utility whatsoever. In this regard, it is very similar to both Shiba Inu and Dogecoin.
At the end of last year, Solana (SOL -4.28%) developers launched Bonk as a way to reward loyal members of the Solana community. The price of Solana was down more than 90% at the end of 2022, and the launch of Bonk was supposed to be a fun way to keep people engaged and interested in Solana heading into 2023. On Christmas Day 2022, one-half of the total coin supply was literally given away for free to Solana community members via a process known as an airdrop. Bonk was never intended to be a long-term, buy-and-hold investment.
On the website for Bonk, there are a lot of mentions of Web3, including a lot of hype about Bonk becoming "the true community coin of Web3." In many ways, this reminds me of Shiba Inu -- it, too, promised new Web3 initiatives as a way of building value, including a new metaverse world called SHIB: The Metaverse. But these never gained the sort of traction people expected.
New meme coin, same as the old meme coin
Investors need to be aware that the price of Bonk will likely be tremendously volatile. For now, Bonk has enormous goodwill around it (much like Shiba Inu did in 2021), and the price just seems to keep going up. But Bonk is highly dependent on constant marketing promotions and hype, and that's very risky. At any time, Bonk could go to zero. In a single day earlier this month, for example, Bonk plunged 44%. So be prepared for big zigs and zags in the price of Bonk.
If you have a few extra bucks around the holidays, then it might be fun to invest a small sum in Bonk -- but for entertainment purposes only. Meme coins are designed to be fun and entertaining, and certainly not to be cornerstones of your investment portfolio.
If you're looking for an alternative to Bonk, I'd recommend Solana (the blockchain of Bonk), which is up more than 800% this year. I'm bullish on Solana as a top Layer 1 blockchain network. Like Cathie Wood of Ark Invest, I think that Solana can one day challenge Ethereum (ETH 0.25%). That sets up Solana to be much more of a solid, long-term investment play, and one that I would feel comfortable adding to my portfolio in 2024.
