Don't look now, but artificial intelligence (AI) stocks aren't the hottest investment anymore. Despite the massive gains witnessed from the likes of Nvidia and Super Micro Computer in the AI realm, it's the cryptocurrency space that's, once again, turning heads and dropping jaws.
As of late evening on March 3, the combined valued of all digital currencies listed on CoinMarketCap.com was $2.39 trillion. That's up 44% from where the year began and a whopping 134% (from $1.02 trillion) over the trailing-12-month period. In other words, the combined value of all cryptocurrencies has risen at more than three times the pace of the gains in the Nasdaq Composite over the trailing year.
To be fair, the catalysts of the cryptocurrency space are far different from buying and selling stocks on Wall Street. Whereas the latter is primarily driven by news events over the short-term and operating performance over long periods, cryptocurrencies have a strong tendency to move based on technical analysis and emotion-based trading, such as the fear of missing out (FOMO).
Shiba Inu-themed meme coins have soared over the past week. Image source: Getty Images.
Although there is a tangible aspect to investing in digital currencies -- e.g., the utilization of blockchain technology to improve financial transactions and supply chain management -- it's difficult to justify the valuations of most cryptocurrencies.
As we steam forward into March, three red-hot cryptocurrencies stand out for all the wrong reasons and are worth avoiding like the plague.
Shiba Inu
The first digital currency that can easily be cast aside by investors in March (and likely well beyond) is meme token Shiba Inu (SHIB +0.48%), which has more than doubled in value over the trailing week and now boasts a frothy market cap of $13 billion.
CRYPTO: SHIB
Key Data Points
The catalyst behind Shiba Inu's move looks to be increased activity on its layer-2 Shibarium blockchain network, which launched in August 2023. Based on posts shared on social media platform X from Shiba Inu's official handle (@shibtoken), Shibarium has reached 3 million transactions per day and has driven down transaction fees from prior to its August release.
Unfortunately, the goals for Shiba Inu's developers when creating Shibarium have changed since it was first announced. When SHIB tokens were soaring in 2021, non-fungible token (NFT) marketplaces and blockchain-based gaming were the hottest things since sliced bread. However, NFT sales have fallen through the floorboard, while interest in blockchain-based gaming has slowed to a crawl. While Shibarium does offer decentralized finance (DeFi) capabilities, the primary purpose of its development saw its heyday come and go before it was launched.
I'll also add that Shibarium ran into multiple delays during development, and even endured snafus following its public launch in August. Its developers appear to have chased an NFT and gaming bubble, with little hope now of realizing their peak ambitions.
At the end of the day, Shiba Inu is nothing more than a payment coin -- and there's never been anything particularly exciting about payment coins. As of June 2023, only around 40,000 businesses worldwide (mostly non-descript online shops) accepted Shiba Inu as a form of payment. That's doesn't move the needle when there are an estimated 334 million companies worldwide.
CRYPTO: DOGE
Key Data Points
Dogecoin
From one "dog coin" to another. The second cryptocurrency worth avoiding like the plague in March is none other than Dogecoin (DOGE +1.20%). Over the trailing week, ended late evening on March 3, this meme coin is up 83%, with its market cap now tipping the scales at a bubble-like $22.3 billion.
Dogecoin had its heyday during the first five months of 2021, where it was pumped into the stratosphere by social media FOMO and Tesla CEO Elon Musk, who offered to work with Dogecoin's developers to improve the network. Although DOGE coins have "gone to the moon" in recent days, it's down considerably from its peak in May 2021.
Like Shiba Inu, Dogecoin is nothing more than a payment coin. There are thousands of digital currencies that can act as payment coins, which means there's nothing special that helps Dogecoin stand out, other than its trivial ties to Elon Musk on social media. Further, the vast majority of businesses don't accept DOGE as a form of payment, making this meme coin more of a novelty than a real-world-use token.
Dogecoin isn't the most efficient network, either. It can be prone to congestion, which slows down the validation of transactions and bogs down transfers. There are a number of other payment tokens and networks that surpass Dogecoin in both expediency of transaction validation and average cost per transaction.
To round things out, history is most definitely not on the side of Dogecoin. Payment coins that gain 10,000% or more in a short period have historically retraced by well over 90% in the years following their peak. Despite declining by as much as 93% from its peak to trough, history would suggest this novelty coin with little real-world utility has further to fall.
Image source: Getty Images.
Bitcoin
The third cryptocurrency to avoid like the plague in March is none other than the largest and best-known digital currency by market cap, Bitcoin (BTC +1.43%). Bitcoin has nearly quadrupled in value since the start of 2023.
Aside from its visibility as the most-prominent cryptocurrency, Bitcoin's rally has been fueled by the Securities and Exchange Commission giving the go-ahead for 11 spot Bitcoin exchange-traded funds (ETFs). These ETFs will effectively mirror the price movements of Bitcoin. They'll also be purchasing the popular digital currency, which is almost certainly driving the price of its tokens higher.
Bitcoin is also set to undergo another halving event next month. Halving events reduce the block rewards given to cryptocurrency miners, and therefore slow the pace of new tokens entering into circulation. Historically, Bitcoin has rallied into halving events.
CRYPTO: BTC
Key Data Points
On the other hand, Bitcoin's last halving event in 2020 created a buy-the-rumor/sell-the-news stampede out of Bitcoin. With both big catalysts for 2024 expected to be out of the way by mid-April, Bitcoin could struggle to find relevant catalysts for the remainder of the year.
Another issue for Bitcoin is that the Federal Reserve's rate-easing cycle may be put on hold. Stubbornly high shelter inflation, coupled with stronger-than-anticipated growth from the U.S. economy, means there's little incentive for the nation's central bank to lower rates. The Fed holding rates steady will make Treasury bond yields more enticing and would be expected to result in less cash flowing into Bitcoin and its corresponding spot ETFs in the months to come.
I'd also avoid Bitcoin given that it's lost many of its first-mover advantages. It's a first-generation network that's been lapped by third-generation blockchain networks that can process transactions faster and cheaper, and can offer utility beyond financial applications.
