In 2021, Shiba Inu (CRYPTO:SHIB) took the investing world by storm, creating astonishing wealth in a matter of months. In fact, despite falling 60% from its high, the meme token has still produced a return of 61,000,000% since November 2020. At that pace, $1.75 invested last year would be worth more than $1 million today.
Not surprisingly, Shiba Inu is still quite popular in the crypto community, and many investors are hoping for a repeat performance. Unfortunately, the chances of that happening are non-existent. The life-changing wealth created by this cryptocurrency can be chalked up to one quality: popularity. Brilliant branding and aggressive social media campaigns fueled its rise to prominence. Other than that, there is nothing special about Shiba Inu.
Even worse, the top 10 wallets currently hold 65% of all Shiba Inu. That concentration creates significant risk. Those whales will decide to sell at some point, and when that day rolls around, Shiba Inu’s price will fall hard. To that end, there are dozens of cryptocurrencies I would prefer to buy. Bitcoin (CRYPTO:BTC), Ethereum (CRYPTO:ETH), and Litecoin (CRYPTO:LTC) are at the top of that list. Here’s why.
Retail investors were early adopters of crypto, but institutional investors are increasingly curious about the industry. A recent study from Nickel Digital Asset Management suggests that 62% of institutional investors without current exposure plan to invest in cryptocurrency within the next year.
On that note, a study from PricewaterhouseCoopers indicates that Bitcoin, Ethereum, and Litecoin are the three most popular digital assets among crypto hedge funds. A study from Fidelity corroborates that information, stating that those three coins are the most widely held digital assets among institutional investors. In the coming years, as those big money managers pour funds into the crypto market, the price of Bitcoin, Ethereum, and Litecoin should rise.
Bitcoin was the first widely adopted cryptocurrency, and it’s still worth more than any of its peers. It currently has a market value of $896 billion, representing 40% of the entire crypto market. As a result, Bitcoin has become synonymous with cryptocurrency.
Adding fuel to the fire, fintechs like PayPal and Block allow consumers to buy, sell, and hold the cryptocurrency through their mobile apps, making it even more accessible. At the same time, institutional adoption has soared in the past year. In November 2020, institutional investors held 3.6% of Bitcoin on a fully diluted basis, but that figure has ticked up to 7.1%.
Why is that happening? Apart from its popularity, Bitcoin is a finite asset. Its source code limits the supply to 21 million coins. And basic economic principles suggest that when demand outpaces supply, the price of an asset will rise. In the future, as more institutional investors diversify into cryptocurrency, that catalyst should push Bitcoin’s price upward.
The investment thesis for Litecoin is similar. It was actually created from Bitcoin’s source code, though with a few key changes. Most notably, Litecoin is four times more abundant. Whereas Bitcoin is capped at 21 million coins, this network is limited to 84 million litecoins. Not surprisingly, it has earned a reputation as digital silver, much like Bitcoin has earned a reputation as digital gold.
As more institutional investors add crypto to their portfolio, Litecoin’s popularity should translate into demand, driving its price higher. In fact, with a current market value of $10.3 billion — just 1% of Bitcoin’s market value — I wouldn’t be surprised to see this cryptocurrency grow tenfold over the next decade.
Ethereum was the first programmable blockchain. Rather than functioning as a simple payments system, developers can build self-executing computer programs (smart contracts) on the platform. And that technology powers decentralized finance (DeFi) applications, products that make it possible to lend, borrow, earn interest, and more, all without involving a bank. And by removing unnecessary third parties, DeFi makes financial services more efficient.
Case in point: You could earn 3.16% APY by lending USD Coin — a stablecoin designed to track the U.S. dollar — to the Aave protocol. That’s far better than the 0.06% annual interest paid by the average savings account these days. With that in mind, the rapid growth of the DeFi industry is easy to understand. DeFi investments have skyrocketed over 1,200% to $249 billion in the past year, a trend that bodes well for Ethereum. In fact, with $162 billion invested in products on its blockchain, Ethereum accounts for 62% of the entire DeFi market.
So why should you invest in Ethereum? Apart from its popularity with both retail and institutional investors, the adoption of DeFi should be a significant catalyst. DeFi products are more efficient than traditional financial services, but they aren’t free. Users pay transaction fees in the form of cryptocurrency. To use products on the Ethereum blockchain, users have to buy the Ether token. And as more consumers invest in DeFi products on the platform, demand for Ether and Ethereum should rise, sending token prices higher.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.