As bitcoin prices continue to decline, some investors are taking advantage of the low pricing to stock up on cryptocurrency.
In some instances, this can be a wise decision. If the market eventually recovers, you stand to gain a significant amount of money if you invest immediately. That being said, it’s critical to buy in the correct cryptocurrencies at the right times, as not all cryptocurrencies will be able to rebound from major price declines.
What is Cryptocurrency?
According to Investopedia, in the digital or virtual money world, a cryptocurrency is a digital or virtual currency that is protected by encryption, making it nearly impossible to counterfeit or double spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a distant network of computers—which is used by a large number of cryptocurrencies to operate.
Because cryptocurrencies are not issued by any central authority, they are theoretically immune to meddling or manipulation by governments. This is one of the most distinguishing characteristics of cryptocurrency.
Digital currencies such as bitcoin and Ethereum can be mined or purchased on cryptocurrency exchanges. Not all e-commerce websites accept payments in cryptocurrencies as a form of payment. In reality, cryptocurrencies, even the most well-known ones such as Bitcoin, are rarely used for everyday transactions.
However, as a result of their soaring value, cryptocurrencies have become increasingly popular as trading instruments. They are also used for cross-border transfers, however only to a limited extent.
Avoid these cryptocurrencies
It can be tempting to pile into riskier assets because they’re more affordable at the moment. But there are two really popular cryptocurrencies that you should avoid at all costs.
1. Shiba Inu
Shiba Inu saw skyrocketing returns last year, quickly becoming one of the most frequently traded in 2021. However, it is currently down approximately 76% from its all-time high in October.
Although most cryptocurrencies have taken a beating during this downturn, Shiba Inu may have a more difficult time recovering. Its popularity was fueled primarily by hype, as retail investors purchased the cryptocurrency in droves in order to drive up its price – only to sell shortly after it peaked.
Shiba Inu has tried to defend itself by emphasizing its practicality. ShibaSwap for example is a decentralized exchange where Shiba Inu investors can trade without the use of an intermediary.
But Shiba Inu has very little utility. It is not widely accepted as a form of payment, and its extreme volatility makes it an inadequate store of value. Furthermore, the top ten Shiba Inu accounts control nearly 66% of all coins in circulation. If any of those investors decide to sell, the Shiba Inu price could plummet overnight.
Dogecoin, the original meme coin, influenced a slew of canine-related cryptocurrencies, including Shiba Inu. However, it has been on a downward trend since last summer, falling more than 81 percent since its peak in May 2021.
Like Shiba Inu’s, Dogecoin’s popularity has been driven primarily by retail investors rather than real-world utility. Although Dogecoin has gained popularity as a means of exchange, it is still far behind competitors such as Bitcoin.
It also does not permit decentralized applications (dApps) such as non-fungible token (NFT) marketplaces or decentralized finance (Defi) projects, making it Dogecoin difficult to compete with networks such as Ethereum.
Although Dogecoin has managed to stay afloat following its most significant crash last year, it will be difficult for it to remain viable in the long term in the absence of significant competitive advantages.
According to Motley Fool, because cryptocurrency is still speculative, it can be a risky investment. Even the most powerful cryptocurrencies are not guaranteed to survive in the long run, so there is some risk no matter where you invest.
However, you can reduce your risk by selecting investments with greater real-world utility. Bitcoin and Ethereum, for example, are not only the two most popular crypto investments, but they also have real-world applications. Bitcoin is both a medium of exchange and a store of value, and Ethereum’s network can support everything from NFT marketplaces to Defi projects.
The most important thing to remember when purchasing cryptocurrency is to avoid hype as much as possible. If the price of a cryptocurrency skyrockets for no apparent reason, this is a major red flag. Your crypto investments will have a much better chance of surviving volatility if you do a lot of research before you invest.