Perhaps no assets captivated investors' attention this year more than Dogecoin (CRYPTO: DOGE) and SafeMoon (CRYPTO: SAFEMOON). In the past 12 months, Dogcoin is up a stunning 6,100%, while SafeMoon shot up a staggering 647,300% since its inception on March 9, 2021. Even a small investment in the two, for example as low as the amount on a stimulus check, would have created millionaires. Keep in mind, these growth figures are after factoring in the plunges of about 80% from their all-time highs in May.
Given the sharp growth rates, many investors may be thinking of buying the dip, thinking the rally may resume once more. Here's why that's a terrible idea.
Image source: Getty Images.
Is Dogecoin safe?
Dogecoin is a terrible long-term investment due to a simple reason: inflation. Each year, about 5 billion doge coins are created out of thin air and introduced into its existing 130.5 billion supply with no upper limit. This basically ignores the entire appeal of cryptocurrencies, which attract investors who are fed up with the centralized and inflationary nature of fiat currencies. There are also no distinguishing features to the meme currency. That said, the coin seems due for a dead cat bounce in the short term.
One can thank Tesla's (NASDAQ: TSLA) CEO Elon Musk for that. Musk's support for Dogecoin has caused it to gain recognition among vendors. As a result, there are now over 1,461 outlets worldwide that accept it -- up from just 50 two years ago. The higher the number of users trading the coin, the greater the value of the network, which can offset inflationary pressures in the short term.
But Dogecoin currently has a market cap of $26.8 billion, so unless merchants begin rapidly adopting the coin as a form of payment en mass, the coin's fundamental value won't be going up in the long term. So at the end of the day, Dogecoin is just another low-utility, high-supply coin investors should avoid.
What about SafeMoon?
If you thought Dogecoin was bad, SafeMoon is even worse. There are few, if any, merchants currently accepting this digital currency. What's more, the coin has become the pinnacle of the cryptocurrency bubble, similar to BitConnect a few years ago. As its name suggests, SafeMoon was created entirely to solicit initial coin offering (ICO) investors to sell to new buyers at a higher price. "Going to the moon" is a popular financial lingo that refers to an asset skyrocketing in price in a very short amount of time.
The coin has caught the attention of many "crypto-influencers" who are "pumping and dumping" it. This comes from its misleading price design. Currently, each coin costs about $0.000002642 (and falling), and influencers tend to use rhetoric such as "you'll be a multi-millionaire if the price hits just $0.01" to solicit new investors. The only problem is that SafeMoon currently has a market cap of $2.633 billion -- meaning that the coin would have a market cap of around $10 trillion at $0.01 per coin. So even if influencers somehow solicited everyone on Forbes' World's Billionaire List to dump all their net liquid savings into the coin, it's doubtful that the price could move there.
There are no positive distinguishing features associated with SafeMoon that differentiate the coin from the 10,957 other cryptocurrencies out there. In fact, the SafeMoon network imposes a 10% "tax" on all transactions on top of exchange fees, making it rather unusable. What's more, SafeMoon is built on a proof-of-authority mechanism, with block creators chosen by cryptocurrency exchange Binance. The entity has recently gotten into trouble with U.S. and U.K. regulators for lacking proper credentials in brokering investments. Overall, I see SafeMoon going nowhere but down in the near future. It's definitely a cryptocurrency to avoid.
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Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
