The crypto market has skyrocketed during the pandemic as several trends have converged to make digital assets more mainstream. Social distancing and stimulus checks have left retailers with extra time and money. Fintechs love PayPal Reduced friction by adding crypto support to widely adopted digital wallets. And even tokens like shiba inus (SHIB -0.11%) and Dogecoin fueled the hysteria by generating jaw-dropping returns within months.
Oh, how the tide has turned. This year, the crypto market sold off sharply as soaring inflation caused many investors to shed risky assets. This led to the forced liquidation of highly leveraged positions, which accelerated the stock market crash. The collapse of the Earth blockchain and bankruptcy filings by crypto firms like Celsius, digital traveland Three Arrows Capital also contributed to the chaos.
That being said, investors can take comfort in one fact: the crypto market has recovered from every past downturn, and there is no reason to believe this one is any different. This means that another bull market is almost certainly on the way.
With that in mind, here is one cryptocurrency to avoid and one to buy now.
Shiba Inu: a meme token with little value
The Shiba Inu developer community is working hard to increase the value of the meme token with new use cases and burning projects. A collection of 10,000 Shiba Inu NFTs, known as Shiboshis, went live last October and sold out in 35 minutes. The Shiba Inu Metaverse launched in June, allowing investors to buy digital plots of land that can be renamed in exchange for burning tokens.
More recently, the developer community released a new Shiba Inu-themed game, Shiba Eternity, which will feature Shiboshi NFTs. And in the coming months, the launch of a Layer 2 scaling solution (Shibarium) will move Shiba Inu transactions away from the Ethereum blockchain to speed up throughput and reduce gas fees. This upgrade in particular could be a significant catalyst as it reduces friction for investors.
Collectively, these projects generated quite a bit of buzz. In fact, Shiba Inu grew 45% last month and over 80% last year. But the fact remains that Shiba Inu is just an Ethereum-based meme token with very little real use. It will never support its own ecosystem of decentralized applications (dApps) and decentralized financial services (DeFi), and it has not been widely integrated with Ethereum-based dApps and DeFi services.
However, the most alarming problem is the propaganda surrounding the burning projects. The concept is simple: there are 589 trillion Shiba Inu tokens, and destroying some of that stock would increase the value of the remaining tokens. But there is a big problem with this investment thesis. It’s based on the idea that people will literally throw money.
For all these reasons, I think investors should avoid this cryptocurrency.
Bitcoin: a rare digital asset with growing institutional demand
Bitcoin (BTC 0.93%) is fundamentally different from other digital assets. It was the first truly rare crypto ever created – its source code imposes a supply limit of 21 million tokens – and this first-mover advantage translated into immense popularity. Today, Bitcoin is synonymous with cryptocurrency, and its market capitalization of $458 billion represents 40% of the total value of the crypto market.
This popularity has also brought thousands of miners to the platform, resulting in a higher hash rate than any other blockchain. This makes Bitcoin the most decentralized and secure cryptocurrency on the market, and this value proposition has naturally caught the attention of institutional investors.
Earlier this month, BlackRock (the world’s largest asset manager) launched a private Bitcoin trust for US institutional clients and major banks like Morgan Stanley and Goldman Sachs took similar steps. To that end, Bitcoin is the most popular digital asset among institutional investors, according to data from Fidelity. This is particularly noteworthy because institutional investors control over $100 trillion in assets under management, and a fraction of that wealth could send Bitcoin to the moon.
This makes the investment thesis crystal clear: Bitcoin is a finite asset, which means its price will rise along with demand. And given its popularity with retail traders and institutional investors, there’s good reason to believe Bitcoin’s demand will grow as the world becomes more digital. This is why risk-tolerant investors should consider buying this cryptocurrency.
Trevor Jennewin holds positions in PayPal Holdings. The Motley Fool has positions and recommends Bitcoin, Ethereum, Goldman Sachs and PayPal Holdings. The Motley Fool has a disclosure policy.