Why do people invest in cryptocurrency? It could be for speculation, pursuing stellar profits or the diversification of their portfolio. The investment philosophy surrounding cryptocurrency has changed radically as some large investment banks have built positions in selected cryptocurrency picks.
An interesting article on MarketWatch states that an expert expects two notable things.
First, Bitcoin (CCC:BTC-USD) may face tough times ahead, and as a result, the whole cryptocurrency market may be affected. Second and most interestingly is his prediction that the first thing may happen after the price of Bitcoin reaches $300,000 at the end of 2021.
So while Bitcoin is the dominant cryptocurrency and its value is now near an all-time high, this potential danger may mean there are also several cryptocurrencies picks to avoid at all costs.
Before jumping in on the list of risky crypto, here’s a quick reminder on the basics that give value to cryptocurrencies.
While value is different than price, we will refer to price here for the sake of simplicity. Many factors can change the price of a cryptocurrency. The most important ones that I like are found on Liquid:
- Utility and use
- Market cap and supply
- Target market
Supply and demand is another factor that moves all cryptocurrencies, but I’ll pick the most important criterion for my analysis — utility and use.
Here are four cryptocurrencies to avoid:
- KIMCHI.finance (KIMCHI-USD)
- Dogecoin (DOGE-USD)
- PiplCoin (PIPL-USD)
- FuzzBalls (FUZZ-USD)
Kimchi Finance is a yield farming token and it does not have a purpose besides farming. So what is farming in cryptocurrency terms?
According to Binance “Yield farming is a way to make more crypto with your crypto. It involves you lending your funds to others through the magic of computer programs called smart contracts. In return for your service, you earn fees in the form of crypto.”
In simpler words, users get to produce even more tokens after they invest a specific amount to the available pools. So they provide liquidity and receive compensation. But the risks are too high. KIMCHI.finance is also a fork version of SUSHI Swap, software running on Ethereum (CCC:ETH-USD) to incentivize a network where users can buy and sell crypto assets.
Decisions relating to the SushiSwap software are made by the holders of its native cryptocurrency, SUSHI (CCC:SUSHI-USD). Anyone holding a balance of this asset can propose changes to how it operates, and can even vote on proposals submitted by other users.
Why invest in such complexity and uncertainty? The latest price of KIMCHI.finance was near 9 cents.
This token is based on a meme and has been put into the spotlight by Reddit traders.
CoinMarket mentions the unusual use case for which Dogecoin was created: “Dogecoin has been used primarily as a tipping system on Reddit and Twitter to reward the creation or sharing of quality content.”
And its price has been prone to spike thanks to mentions by Elon Musk on social media. So why buy it? Does it make sense? Factor in another key reason I believe Dogecoin is not attractive: its total supply is uncapped, meaning that there is no limit to the total number of Dogecoin that can be mined. On the contrary, there are 21 million Bitcoins that can be mined in total. No more than that, ever.
Is this meme worth investing in it? I don’t think so. The last price of Dogecoin was about 6 cents.
PiplCoin has the mission to provide high liquidity for a blockchain-based project called PiplShare. The PiplShare platform is about finding and offering jobs, specifically freelance work.
There are some advantages mentioned by the PiplShare Project for freelancers, such as enhancing the portability and authenticity of their profile, cheaper and safer payments and even intellectual property protection.
But for me, the red flag is the mention of having the potential to earn passive income. There is a reference that “generating sustainable passive income can be more difficult than generating active income. But if you’re successful enough, all you have to do is sit back and watch the money come in.”
In theory, this sounds too good to be true. But what life and experience have taught me is that to generate sustainable revenue, or even better, recurring passive income, you have to offer and create value. I am not convinced about the real value of this cryptocurrency.
And it has very thin liquidity and trading volume, which shows me that its wide adoption based on its promising features is far from likely.
This cryptocurrency is funny, but just a terrible investing idea. It is intended for gifting and parties, and users can generate FUZZ through the process of mining. There is a FUZZ shop where small items such as keychains or bottle openers will be added for gifting purposes.
When you read on their website that “ideas for giving the coin some more actual usage are always welcome. add a comment!!” you may wonder why anyone would buy or trade this cryptocurrency.
If you’re planning a party for the post-pandemic era, you can buy things online or by visit a physical shop. It’s no wonder why its trading volume is pretty much non-existent. I see no value for this cryptocurrency at all, unless you want a souvenir of a worthless token.
On the date of publication, Stavros Georgiadis, CFA, did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.