Last year’s 29% total return for the benchmark S&P 500 blew past its average annual total return of 11% since the beginning of 1980. Yet even with this stellar gain, the stock market again took a back seat to cryptocurrencies in 2021.
When the year was over, the aggregate value of the cryptocurrency market had nearly tripled to $2.2 trillion. The “Big Two,” Bitcoin and Ethereum, which account for 60% of the $2.2 trillion crypto market cap, were obviously key to this gain.
But it’s not Bitcoin and Ethereum that captivated the attention of investors in 2021. That honor went to the dogs, Shiba Inu ( SHIB 1.36% ) and Dogecoin ( DOGE 0.26% ). The big question as we steam forward into a new year is: Which ultra-popular cryptocurrency makes for the better buy in 2022? Let’s take a closer look.
Why optimists are excited about Shiba Inu
First up is meme coin Shiba Inu, which managed a record-setting gain of almost 46,000,000% in 2021. This means investors who had the luck, stomach, and wherewithal to invest a little over $2 in SHIB on Jan. 1, 2021 ended the year as millionaires.
The fuel for Shiba Inu’s historic run-up has been its increased visibility. It’s one of the most-searched cryptocurrencies in the U.S., and the number of investors holding SHIB tokens recently vaulted past 1.1 million. As more crypto exchanges accept SHIB for listing, visibility and liquidity will improve.
The launch of decentralized exchange ShibaSwap in July has been a positive catalyst. Aside from boosting liquidity, the ability to stake coins on ShibaSwap has incentivized investors to hang onto their coins for an increasingly longer period of time.
Optimists also have to be pleased with Shiba Inu landing a couple of major merchants last year. Movie theater chain AMC Entertainment will begin accepting SHIB for online payment during the first quarter, while tech-focused e-commerce company Newegg Commerce began accepting Shiba Inu in December.
But for 2022, investors are primarily focused on new developments. It’s expected that layer-two blockchain project Shibarium will launch this year, with non-fungible token (NFT)-based gaming following not too long after that. Blockchain-based gaming, and anything having to do with the metaverse — the next iteration of the internet, which allows users to interact in 3D virtual environments — have been especially hot in recent months.
The bear case for Shiba Inu
But it’s the cryptocurrency space, and there are two sides to every coin.
One of the biggest problems with Shiba Inu is its lack of competitive advantages and differentiation. It’s done an excellent job of creating hype on social media and drawing in excited investors. However, Shiba Inu is, as of now, nothing more than an ERC-20 token built on the Ethereum blockchain. Because the Ethereum network is popular, it’s prone to congestion, processing lag, and high transactions fees. In other words, Shiba Inu isn’t a particularly efficient payment coin.
It’s also hard to overlook the real-world use case of SHIB. Keeping in mind that virtually all cryptocurrencies have minimal utility — but Shiba Inu’s real-world use case is particularly small given its $18 billion market cap. Online business directory Cryptwerk shows that only about 600 merchants globally will accept SHIB as a form of payment, and 44 of these “merchants” are nothing more than crypto exchanges. Putting aside AMC and Newegg, the merchants Shiba Inu is accepted by are mostly obscure online businesses.
Pessimists will also point to history. Virtually all life-altering gains in the cryptocurrency space are met with equally epic reversions. After gaining around 46,000,000% last year, the bears will be counting on SHIB to retrace its steps in a big way in 2022.
Why optimists are excited about Dogecoin
Then there’s Dogecoin, which was actually the most-searched digital currency in the U.S. last year — even more than Bitcoin and Ethereum. The Shiba Inu-inspired token ended 2021 higher by close to 3,000%. It’s a far cry from Shiba Inu’s gains, but it’s a better return any single stock provided last year.
Arguably the biggest catalyst for Dogecoin in 2021 — and moving forward — is Tesla Motors‘ CEO Elon Musk. The world’s richest person only owns three digital currencies, and Dogecoin is one. He’s no stranger to tweeting Shiba Inu-themed memes on Twitter, which acts as a makeshift sign for enthusiasts to buy DOGE tokens.
In addition to being an avid supporter of the project, Elon Musk has also tweeted that he’d be working with Dogecoin’s developers to improve the blockchain-based network. For what it’s worth, project developers have already been working on upgrades to the network designed to lower transaction fees and make DOGE more competitive in the crypto space. At the moment, transactions on Dogecoin’s blockchain are cheaper than on Bitcoin’s or Ethereum’s blockchain network.
Enthusiasts are excited about increased adoption, too. Tesla recently began accepting Dogecoin for select merchandise, with other global companies, such as AMC, giving DOGE the green light.
The bear case for Dogecoin
Interestingly, the bear case for Dogecoin is almost identical to Shiba Inu’s.
Like Shiba Inu, the biggest concern with Dogecoin is that it lacks competitive advantages and differentiation. Although its network is less costly than Bitcoin or Ethereum’s, it’s significantly costlier than virtually all other popular payment coins, and it can’t scale nearly as quickly. In short, there’s no stand-out reason why businesses should be clamoring to accept DOGE as a form of payment.
To build on this previous point, Dogecoin debuted a tad over eight years ago, but according to Cryptwerk has only managed to nab 1,982 merchants that’ll accept its token as payment. With nearly 10% of this figure accounted for by crypto exchanges, little real-world utility is offered by Dogecoin.
Pessimists have history on their side with Dogecoin, too. This is a cryptocurrency that gained more than 27,000% in a six-month stretch between early November 2020 and early May 2021. Gains of this magnitude in payment coins have pretty much always led to retracements of 93% to 99%. Since its May all-time high, DOGE tokens have declined by 77%.
And the better buy is…
Now that we’ve taken a closer look at the pros and cons of Shiba Inu and Dogecoin, let’s get to the meat and potatoes: Which is the better buy in 2022?
My answer is, unsurprisingly, neither.
Given that neither cryptocurrency offers competitive advantages or differentiation in a space where hundreds of new coins and blockchain projects are debuting weekly, there’s nothing that’ll give either token staying power.
Perhaps the more appropriate question to ask is: “Which cryptocurrency has greater downside potential in 2022?” And to that I’d say Shiba Inu is at far greater risk of a significant plunge in its value than Dogecoin.
Don’t get me wrong — Dogecoin has been propped up by nothing more than social media hype and unfulfilled promises of “going to the moon” by Elon Musk. However, it’s already retraced 77% from its all-time high. By comparison, Shiba Inu gained around 46,000,000% in a single year, and has only retraced by a little more than 60%. Based on the magnitude of reversions we’ve witnessed in the crypto space following six-digit percentage gains in the short term, as well as SHIB’s virtually nonexistent real-world utility, a pullback of 99% could very well occur.
Although my suggestion is very clear — avoid all Shiba Inu-themed cryptocurrencies — Dogecoin looks to have lesser downside.
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.