Bitcoin
History suggests Bitcoin will be a better long-term investment than little-known Meme coins
The value of some meme coins may be skyrocketing right now, but that doesn’t make them better investments than the original crypto.
Something interesting is happening in the crypto market right now. While Bitcoin (Bitcoin 1.04%) increased 65% in the year, some popular meme coins are appearing in even higher percentages. So far in 2024, Dogecoin (DOGE -0.13%) increased by 85%, Shiba Inu (SHIB 4.69%) rose 147% and little-known meme coin PEPE (PEPE 2.83%) increased by almost 1,000%.
It’s starting to look a lot like 2021, when the crypto market experienced its last major bout of meme coin mania. While it may be tempting to invest in these soaring currencies, history suggests that long-standing sector stalwarts such as Bitcoin will end up being better investments.
Short-Term Returns Versus Long-Term Returns
The main problem with speculative meme coins is that they are only built for the short term. Yes, they can deliver dazzling returns over short periods, but when you zoom out and consider their performances over a longer horizon, the picture becomes much less appealing.
To take Dogecoin, for example. In 2021, it has seen spectacular success, rising from mere pennies to an all-time high of $0.74 in just a few months. But then, Dogecoin fell back to earth and now trades for just $0.17. In its nearly 10-year history, Dogecoin has never surpassed the $1 mark.
Compare this performance with that of Bitcoin, which has been delivering 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 delivered annualized returns of 230%, compared to around 20% for the technology sector Nasdaq-100 index. Yes, Bitcoin has had its down years, but in the long run, it has been good for investors.
The scarcity effect
Another factor in Bitcoin’s favor is scarcity. The total number of Bitcoins that can exist is 21 million coins. Currently, 19.7 million of them have already been mined, and the rate of mining new ones was again halved last month. This creates a real scarcity effect, especially now that large institutional investors are buying Bitcoin.
When you compare Bitcoin’s circulating coin supply to that of the 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 a price of $1, as that would give the meme coin a market value of $589 trillion. By way of comparison, the current market capitalization of the entire S&P 500 is approximately $44 trillion.
And the story is pretty much the same with other meme coins. The key to its initial success was the release of a huge initial supply of coins, often measured in trillions of coins. This elevates them to multi-billion 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 look like a relatively safe investment. Pepe, for example, exploded out of nowhere to become a top 25 cryptocurrency, largely based on its impressive supply of 421 trillion coins.
To make matters even 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 are creating literally thousands of new coins daily. If one of them attracts some attention and achieves great success, they will make a huge profit. And if it doesn’t, well, they only wasted a few minutes of your time creating it. Thus, 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 coins meme
In many ways, the current speculation surrounding meme coins reminds me a lot of the 17th century bubble known as Dutch Tulip Mania. This is widely considered to be the first speculative asset 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 amounts for particularly rare tulip bulbs – a single one could fetch 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 lamps quickly plummeted.
Bitcoin as “digital gold”
Of course, there were skeptics who suggested that Bitcoin Could Be a Dutch Tulip Bulb also. They claim that the price of Bitcoin could eventually fall to zero, eliminating speculative crypto traders in the process.
Image source: Getty Images.
Maybe that’s the case, 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 crypto investors often refer to Bitcoin as “digital gold”.
So if you are thinking about buying meme coins now, I have just one piece of advice for you: buy Bitcoin.