In the crypto market, the most popular meme coins have skyrocketed in value within a remarkably short period of time. Shiba Inu (SHIB 0.86%), for example, is now up more than 300% over the past 30 days.
In a single 24-hour period, it was up more than 45%. Even with these incredible recent gains, Shiba Inu is still trading 50% below its all-time high, leading some investors to think that it could have plenty more room to run.
That might be the case, but I'm still buying Bitcoin (BTC 0.91%) instead. Yes, you can argue that Bitcoin is also overheating as it hits a new all-time high, but there are three fundamental factors that make it a much better buy than Shiba Inu.
1. Utility
The starting point for any comparison of Shiba Inu and Bitcoin needs to be utility. The former is a meme coin with no real use. As such, its ability to soar in value is often based on nothing more than hype, speculative buzz, and the desire of many crypto investors to get rich quick.
Would you invest in a company that has no underlying assets and no real strategy for growth? If the answer is no, then Shiba Inu is probably not for you.
Image source: Getty Images.
In contrast, Bitcoin adoption is growing on a global scale, and new uses are continually emerging. ARK Invest now tracks eight separate use cases.
For example, some investors now refer to Bitcoin as "digital gold," because it can serve the same purposes as physical gold: as a hedge against inflation and a long-term store of value. During economic uncertainty, it can also be a safe-haven asset.
2. Coin supply
To understand the price dynamics of Shiba Inu and Bitcoin, just consider the total circulating supply of both coins. Bitcoin's total lifetime supply is capped at 21 million coins, and 19.7 million of these are already in circulation.
Roughly speaking, nearly all of the Bitcoin that can ever exist already exists. So as demand for Bitcoin grows over time, this relative scarcity is going to exert a significant impact on its future price.
We're already starting to see this with the adoption of the new spot Bitcoin exchange-traded funds (ETFs). If you compare the amount of Bitcoin that gets created (i.e. "mined") on a single day, and then compare it to the amount of money that is flowing into the new ETFs every day, it's obvious why the price of Bitcoin has been soaring of late.
On any given day, demand for Bitcoin is approximately 10 times higher than the new supply of Bitcoin. We're reaching a point where some are warning that there is simply not enough Bitcoin to go around.
In contrast, the supply of Shiba Inu is nearly unlimited. There are now 589 trillion coins in circulation, making it nearly a mathematical impossibility for the crypto to ever break through the $1 price level. For that to happen, it would need to have an implied market cap of $589 trillion, which is roughly 300 times the market cap of a company like Amazon (NASDAQ: AMZN).
Shiba Inu has initiated a massive coin-burning strategy to reduce supply, but it simply can't burn coins fast enough to make a difference.
3. The role of institutional investors
Lastly, mention needs to be made of the massive Wall Street and institutional investor support behind Bitcoin right now. The approval of the new spot Bitcoin ETFs in January was a watershed moment for the crypto industry.
It shows that the largest asset managers in the world -- such as BlackRock (NYSE: BLK) and Fidelity Investments -- are now behind Bitcoin. Over time, that institutional support will eventually lead to higher portfolio allocations to Bitcoin, helping to push up its price.
That type of institutional investor support simply does not exist for Shiba Inu. It's hard to imagine any responsible investment advisor recommending a portfolio allocation of any significance to meme coins such as Shiba Inu.
That being said, this might be your last chance to turn a profit on any Shiba Inu you are holding from the last crypto bull market rally. A number of leading indicators are now flashing red, suggesting that the current meme coin mega-rally for Shiba Inu might be short-lived at best. As a result, I'm buying Bitcoin and ignoring all the speculative froth with meme coins right now.
