Memecoins
History suggests that Bitcoin will be a better long-term investment than little-known meme coins
Some meme coins may be skyrocketing in value right now, but that doesn’t make them better investments than the original cryptocurrency.
Something interesting is happening in the cryptocurrency market right now. While Bitcoin (Bitcoin 1.57 % ) is up 65 % for the year, some popular meme coins they are emerging in even greater percentages. So far, in 2024, Dogemoneta (DOGE 2.73%) is up by 85%, Shiba Inu (SHIB 5.60%) is up 147% and is a little-known meme coin PEPPER (PEPPER 6.53%) increased by almost 1,000%.
It’s starting to look a lot like 2021, when the cryptocurrency market experienced its last big bout of meme coin mania. While it might be tempting to invest in those skyrocketing coins, history suggests they appeal to longtime industry supporters Bitcoin they will end up being better investments.
Short and long term returns
The main problem with speculative meme coins is that they are only built for the short term. True, they can offer impressive returns in short periods, but when you analyze their performance over a longer horizon, the picture turns out to be much less attractive.
Take Dogemoneta, For example. It achieved spectacular success in 2021, rising from a few cents to an all-time high of $0.74 in just a few months. But then, Dogecoin came back down to earth, and is now trading for just $0.17. In its nearly 10-year history, Dogecoin has never crossed the $1 mark.
Compare this performance to that of Bitcoin, which has delivered triple-digit annualized returns for over a decade. From 2011 to 2021, Bitcoin was the best-performing asset in the world, and it wasn’t even close. Bitcoin has produced annualized returns of 230%, compared to around 20% for tech-heavy stocks Nasdaq-100 index. Yes, Bitcoin has had its down years, but in the long run it has delivered results for investors.
The scarcity effect
Another factor in Bitcoin’s favor is scarcity. The total number of Bitcoins that will ever exist is 21 million coins. Currently, 19.7 million have already been mined, and the rate at which new ones are mined was halved again just last month. This creates a real scarcity effect, especially now that large institutional investors are buying Bitcoin.
When comparing Bitcoin’s circulating coin supply to that of Shiba Inu, the contrast is particularly striking. Shiba Inu has a circulating coin supply of 589 trillion. This explains why it is highly unlikely to reach the $1 price, as this would give the meme coin a market capitalization of $589 trillion. For comparison, the current market capitalization of the entire S&P500 amounts to approximately 44 trillion dollars.
And the story is more or less the same with other meme coins. The key to their early success was the release of a huge initial supply of coins, often measured in trillions of coins. This brings them to multibillion-dollar market capitalizations, even at absurdly low prices measured in tiny fractions of a cent. This strategy can give even a coin that has only been around for a few months a market capitalization of over a billion dollars, making it seem like a relatively safe investment. Pepe, for example, exploded from nowhere to become a top 25 cryptocurrency, largely thanks to its staggering 421 trillion coin supply.
To make matters worse, it is now possible to create a new cryptocurrency in just a few minutes and have it ready for trading in just a few more minutes. Crypto speculators create literally thousands of new coins every day. If one of them attracts attention and hits big, he can make a huge profit. And if they didn’t, well, they would only waste a few minutes of their time creating it. Therefore, meme coins are no longer as “rare” as they seemed to be just a few years ago, when Dogecoin and Shiba Inu reigned supreme.
Dutch tulips and meme coins
In many ways, the current meme coin speculation reminds me a lot of the 17th century bubble known as Dutch Tulip Mania. This is widely regarded as the first speculative bubble of modern times, and has been brilliantly described in works such as Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds.
For a time, Dutch traders were willing to pay absurd prices for particularly rare tulip bulbs: a single one could command a price equivalent to the annual salary of 10 skilled workers. But the story did not have a happy ending for speculators. Eventually, it became impossible to find new buyers willing to pay more than the previous ones, and the price of light bulbs rapidly plummeted.
Bitcoin as “digital gold”
Of course, there have been skeptics who have suggested this Bitcoin could be a Dutch tulip bulb Also. They claim that the price of Bitcoin could eventually drop to zero, wiping out speculative cryptocurrency traders.
Image source: Getty Images.
Maybe so, but I doubt it. It’s been more than a decade since people started making these claims, and what has been the result? Bitcoin has become more valuable, not less valuable, over time. And that’s because Bitcoin has more in common with a precious metal like gold, due to its inherent scarcity. In fact, many cryptocurrency investors often refer to Bitcoin as “digital gold”.
Therefore, if you are thinking of buying meme coins right now, I only have one piece of advice for you: buy Bitcoin instead.