History Suggests Bitcoin Will Be a Better Long-Term Investment Than Little-Known Meme Coins

Something interesting is happening in the crypto market right now. While Bitcoin (CRYPTO: BTC) is up 65% for the year, some popular meme coins are up even higher. So far in 2024, Dogecoin (CRYPTO:DOGE) is up 85%, Shiba Inu (CRYPTO: SHIB) is up 147%, and little-known meme coin PEPE (CRYPTO:PEPE) is up almost 1,000%.

It’s starting to look a lot like 2021, when the crypto market experienced its last big meme money craze. While it may be tempting to invest in these rapidly rising cryptocurrencies, history shows that long-time industry strongmen like Bitcoin are better investments.

Short-term and long-term returns

The main problem with speculative meme coins is that they are produced only for the short term. Yes, they can deliver dazzling returns in short periods of time, but when you zoom out and consider their performance from a longer perspective, the picture becomes much less compelling.

Take Dogecoin for example. It achieved spectacular success in 2021, rising from mere pennies to an all-time high of $0.74 in just a few months. But then Dogecoin came back to earth and is currently trading at just $0.17. Dogecoin has never exceeded the $1 mark in its nearly 10-year history.

Compare this performance to Bitcoin, which has delivered triple-digit annual returns for over a decade. Between 2011 and 2021, Bitcoin was the world’s best-performing asset and it wasn’t even close. Bitcoin has delivered annual returns of 230%, compared to about 20% for the tech-heavy Nasdaq-100 index. Yes, Bitcoin has had bad years, but it has benefited investors in the long run.

famine 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 issued, and the rate of new ones being issued has halved again 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 a Shiba Inu, the difference is particularly striking. The circulating coin supply of Shiba Inu is 589 trillion. This explains why it is very unlikely to reach a price of $1, as it would give the meme coin a market cap of $589 trillion. For comparison, the current market cap 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 their early success was the release of a massive initial coin supply, often measured in trillions of coins. This pushes them to market caps in the billions of dollars, even at absurdly low prices measured in tiny fractions of a cent. This strategy can give a cryptocurrency that has only been around for a few months a market cap of over a billion dollars, making it seem like a relatively safe investment. Pepe, for example, suddenly became a Top 25 cryptocurrency, largely based on its 421 trillion coin supply.

The story continues

Even worse, it is now possible to create a new cryptocurrency in just a few minutes and have it ready to trade in a few minutes. Crypto speculators create literally thousands of new coins every day. If one of them attracts attention and becomes a huge success, they can make a huge profit. And if it isn’t, they only wasted a few minutes of their time creating it. Therefore, meme coins are no longer as “rare” as they seemed a few years ago, when Dogecoin and Shiba Inu reigned supreme.

Dutch tulips and breast coins

In many ways the current speculation around meme coins reminds me of the 17th century bubble known as the Dutch Tulip Mania. This is widely regarded as the first speculative asset bubble of modern times and has been brilliantly described in works such as Charles Mackay’s Extraordinary Popular Illusions and The Madness of Crowds.

For a time, Dutch merchants were willing to pay absurd amounts for tulip bulbs, especially rare ones; A single tulip bulb could cost the equivalent of the annual wages of 10 skilled workers. However, the story did not have a happy ending for speculators. Eventually, it became impossible to find new buyers willing to pay more than their predecessors, and the price of bulbs dropped rapidly.

Bitcoin is called ‘digital gold’

Of course, there are skeptics who suggest that Bitcoin could be a Dutch tulip bulb. They claim that the Bitcoin price could eventually drop 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 outcome? Bitcoin has become more valuable over time, not less valuable. This is 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 considering buying meme coins right now, I have only one piece of advice for you: Buy Bitcoin instead.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in Bitcoin and recommends it. The Motley Fool has a disclosure policy.

History Suggests Bitcoin Will Be a Better Long-Term Investment Than Little-Known Meme Coins Originally published by The Motley Fool