In 2021, many cryptocurrencies reached their all-time highs as stimulus checks, social media buzz, and a "fear of missing out" (FOMO) brought in a stampede of bulls. But in 2022, that rally fizzled out in a "crypto winter" as rising interest rates drove investors away from cryptocurrencies and other speculative investments.
Bitcoin 's (CRYPTO: BTC) price sank from nearly $69,000 in November 2021 to less than $16,000 in November 2022. Shiba Inu (CRYPTO: SHIB) , which set a record high of $0.000086 in October 2021, plunged more than 90% to $0.000008 by June 2022.
Image source: Getty Images.
However, the crypto market warmed up again in 2023 and 2024 as interest rates stabilized. Bitcoin now trades at over $63,000 again, while Shiba Inu has more than doubled from its multiyear low to about $0.000018 per token. Both tokens could head even higher now that the Federal Reserve has finally started slashing interest rates.
For many investors, Bitcoin might seem like the best " blue chip " play on the market's recovery. With a market cap of $1.26 trillion, it's the world's top cryptocurrency and the 10th most valuable asset in the world. However, more daring investors might be wondering if they should buy Shiba Inu, which only has a market cap of $11 billion, instead of Bitcoin to generate even bigger gains. Let's review Shiba Inu's core strengths and weaknesses to see if it's a viable alternative to Bitcoin.
The differences between Shiba Inu and Bitcoin
Bitcoin is still mined with the proof of work ( PoW ) validation mechanism, which requires the use of miners powered by ASIC (application-specific integrated circuit) chips. Big mining companies like Marathon Digital (NASDAQ: MARA) need to purchase thousands of these power-hungry machines to mine a consistent supply of Bitcoins.
Only 21 million Bitcoins can ever be mined. Approximately 19.8 million of those Bitcoins have already been mined, and the final token is expected to be mined by 2140. That difficulty increases every four years with each "halving," which cuts the rewards for mining Bitcoin in half. That entire process makes it similar to a digital version of precious metal, so it's the only cryptocurrency that can be officially classified as a commodity instead of a security by the U.S. Securities and Exchange Commission ( SEC ). That's also why the SEC approved its first spot-price exchange-traded funds ( ETFs ) earlier this year.
Shiba Inu is a token that was originally mined on the Ethereum (CRYPTO: ETH) blockchain, which transitioned from the PoW mechanism to the more power-efficient proof of stake ( PoS ) mechanism in 2022. The PoS mechanism only requires the validation of data on its blockchain without any mining hardware, but that key difference prevents the SEC from classifying PoS tokens as commodities. Instead, they are classified as securities, which are subject to more regulations than commodities.
Besides energy efficiency, PoS tokens have two key advantages over PoW tokens. First, PoS blockchains support smart contracts, which can be used to develop decentralized apps ( dApps ), non-fungible tokens ( NFTs ), and other crypto assets. The expansion of that ecosystem supports the prices of their underlying tokens. Second, PoS tokens can be staked (locked up for certain periods) on the blockchain to earn interest-like rewards. That stickiness locks more investors into its ecosystem.
So, unlike Bitcoin, Shiba Inu can't actually be mined. Instead, it pre-minted its entire supply of nearly one quadrillion tokens prior to its launch in 2020, and it's already burned ( taken out of circulation ) more than 40% of those tokens to tighten up its supply. It also expanded its own ecosystem by launching its Layer-2 blockchain protocol Shibarium, which supports faster transactions, and its cross-chain decentralized exchange ( DEX ) ShibaDEX.
The main problems with Shiba Inu
Shiba Inu might seem like an interesting alternative to Bitcoin, but it's just one of the many PoS tokens which was mined on Ethereum's blockchain. Ethereum also has its own native "blue chip" token, Ether, which trades at about $2,600 with a much higher market cap of $317 billion. Shiba Inu and other Ethereum-based tokens also can't process transactions as rapidly as newer PoS blockchains like Solana (CRYPTO: SOL) and Cardano (CRYPTO: ADA) .
Shiba Inu also isn't valuable enough to be considered for the approval of its own spot-price ETFs like Bitcoin and Ether. It's accepted by a handful of businesses as a payment option, but it still hasn't been as widely adopted as Bitcoin or Ether.
In other words, Shiba Inu's limited utility and lack of clear advantages against Bitcoin, Ether, and other bigger cryptocurrencies or faster blockchains could limit its upside potential for the foreseeable future. It will remain a niche altcoin for short-term traders dreaming of rapid multibagger gains instead of a compelling alternative to Bitcoin.
If you're bullish on the crypto market, you should simply stick with Bitcoin. Its new spot price ETFs, scheduled halvings, and growing adoption among institutional investors should all drive it higher over the next few years. But you should probably forget about Shiba Inu, which might generate some short-term gains but still lacks any clear long-term catalysts.
Should you invest $1,000 in Bitcoin right now?
Before you buy stock in Bitcoin, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $752,838 !*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of September 30, 2024
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy .
Local News
Comments / 0