For well over 100 years, the stock market has stood on a pedestal above all other investment vehicles. Although it won't outperform bonds, housing, or other commodities every year, none of these other investment channels comes close to matching the ultra-long-term annualized performance of the stock market.
But that's not stopping cryptocurrencies from giving the market a run for its money. For example, Bitcoin and Ethereum (CRYPTO:ETH), the two largest digital currencies by market value, have galloped higher by 8,640% and 28,970%, respectively, over the trailing five-year period. Meanwhile, the benchmark S&P 500 has "edged" higher by a more modest 104% over the same time frame.
Image source: Getty Images.
Cryptocurrency investors are excited about the potential for blockchain technology to revolutionize payments and possibly even improve other aspects of life, such as supply chains. For instance, Ethereum's blockchain is core to the success of decentralized finance (DeFi) -- a financially focused blockchain utilizing smart contracts that'll bypass traditional financial intermediaries that can slow or deny transactions. Ethereum's blockchain could also be used to replace seemingly mile-long paper trails associated with shipping goods around the world.
As another example, I've been keeping an eye on developments with Stellar's (CRYPTO:XLM) blockchain in the payments space. Stellar's blockchain has the ability to turn fiat currencies into Lumens (the coin used on Stellar's blockchain), and Lumens back into a fiat currency. It can effectively transfer, validate, and settle cross-border payments in a couple of seconds, as opposed to the week-long wait some international payments can take.
But as a cryptocurrency skeptic, I'm also keenly aware that most blockchain projects and cryptocurrencies lie somewhere between grossly overvalued and completely worthless. Although the following three cryptocurrencies are exceptionally popular with investors, I'd suggest avoiding them like the plague.
Image source: Getty Images.
Dogecoin
The first ultra-popular cryptocurrency to avoid is arguably the one with the greatest degree of support from the retail community: Dogecoin (CRYPTO:DOGE).
"Hodlers" of Dogecoin firmly believe that they're getting in near the ground floor of broad-based adoption. They're also enamored with the idea of billionaires Elon Musk and Mark Cuban throwing their support behind Dogecoin. But what these folks fail to see is that Dogecoin brings no competitive advantages to the table. In other words, it's not adding value to the payments space with so many other better options available.
As an example, I'd point to the performance and underlying metrics of Dogecoin's blockchain. The average Dogecoin transaction fee is about $0.55, which is markedly higher than at least a dozen other popular digital currencies. In addition to being pricier, Dogecoin's blockchain isn't particularly quick at validating and settling transactions.
To add to the above, Dogecoin's network isn't all that popular, nor is it truly capable of handling a large influx of transactions. Over the past three months, its blockchain is only handling approximately 20,000 transactions a day, which is a three-year low. Comparatively, Visa and Mastercard plowed through 700 million transactions daily, on a combined basis, in 2018.
Want another reason to avoid Dogecoin? How about its limited real-world utility. Despite being described as "the people's currency," Dogecoin is only accepted by 1,714 businesses worldwide, according to online business directory Cryptwerk -- and it's taken eight years just to reach this figure.
If investors remove Elon Musk's tweets from the equation, there's simply nothing in Dogecoin's sails.
Image source: Getty Images.
Binance Coin
Another digital currency to avoid like the plague is the fourth-largest by market value: Binance Coin (CRYPTO:BNB).
At one point, years ago, I was intrigued by Binance Coin. Although it lacked utility outside of the Binance crypto exchange, it was one of a very small number of digital tokens that actually provided a purpose. Investors/traders on the Binance platform could pay their fees with Binance Coin, rather than Bitcoin, and save up to 50% on their transaction fees. These cost-savings would whittle away after a few years.
The Binance team has also been repurchasing BNB with exchange profits, which is known as coin burn. The expectation is that 100 million Binance Coins could be burned over time. Just as share buybacks can make each existing share more valuable for stockholders, the Binance team seems to believe that reducing the total available BNB coin supply can do the same for its stakeholders.
The issue for Binance Coin is that it's facing a mountain of litigation. In May 2021, it was announced that Binance was being investigated by the Commodity Futures Trading Commission regarding concerns that it allowed Americans to place trades on its platform. Shortly thereafter, Binance came under investigation in the U.S. for alleged money laundering and tax evasion, as well as the possibility of insider trading. To boot, Binance is facing class action lawsuits in the U.S. and Australia for disruptions to its crypto trading platform during periods of heightened volatility.
Also, to keep with the theme, Binance Coin has very limited utility beyond its exchange platform. Cryptwerk notes that only 623 worldwide businesses accept it as a form payment, as of October 2021. Even with its potential to capitalize on DeFi projects, there's no reason this token should have a nearly $70 billion market value.
A Shiba Inu-breed dog. Image source: Getty Images.
Shiba Inu
The third and final cryptocurrency to avoid like the plague, Shiba Inu (CRYPTO:SHIB), might just be the most dangerous on this list, and I don't mean that in a positive way.
Shiba Inu was launched last summer as a meme coin that derived its inspiration from the Japanese Shiba Inu dog breed. Make no mistake about it, this coin is aiming to capitalize on the same community effect that sent Dogecoin soaring earlier this year, and is piggybacking on the Shiba Inu theme to aid in that quest.
Additionally, since the supply of Shiba Inu coin was 1 quadrillion tokens at launch, its per-coin price is a microscopic $0.00002614, at the time of writing. Just as some investors wrongly believe that owning more shares of a penny stock will give them a greater chance of getting rich, Shiba Inu appears to be capitalizing on the incorrect idea that owning more tokens of a nominally cheap cryptocurrency will give investors a shot at getting rich quick.
The reality for Shiba Inu is it's likely a pump-and-dump coin. According to data from cryptocurrency trading platform and ecosystem Coinbase, the average investor holding time is only six days. Considering the potential for wash-sale rules coming into effect, as well as higher tax rates associated with short-term capital gains, trading Shiba Inu on the hope that Elon Musk tweets a picture of his dog doesn't seem worth the risk.
To boot, Shiba Inu's real-world use case is even more laughable than Dogecoin and Binance Coin. Putting into perspective that it's only been around a little over a year, just 43 businesses worldwide accept Shiba Inu as a form of payment, per Cryptwerk. Outside of a crypto exchange, Shiba Inu is effectively worthless.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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