As the crypto world continues, investors must be mindful of which projects they want to back for the long haul. Last year, the treacherous “crypto winter” saw the industry’s market cap plummet from $2.2 trillion to $800 billion at the year-end. Though we’ve seen a resurgence of sorts in 2023, not all is rosy with the sector. Amidst this complex landscape, it’s vital to identify the cryptos to avoid and steer clear of the potential risks.
Despite the renewed interest in crypto, many projects remain flawed or predatory, leaving investors in a precarious position. Regulatory crackdowns following the FTX scandal have only heightened concerns, with governments across the globe looking to establish new precedents that could reshape the industry. In light of these developments, investors must choose wisely. With that in mind, let’s look at seven cryptos you should probably avoid.
Cryptos To Avoid: Shiba Inu (SHIB)
Dog-themed crypto Shiba Inu (SHIB-USD) has taken its investors on a rollercoaster ride over the past few years. It is one of the most popular meme cryptos, effectively capitalizing on Dogecoin’s popularity. However, like most of the cryptos discussed in the article, it lacks a competitive edge making it a lackluster long-term bet.
To its credit, Shiba Inu’s team has been working on driving greater adoption, such as its layer-2 scaling solution in Shibarium. Shibarium aims to drive down costs and boost transaction speeds for its users, with use cases across gaming, the metaverse, and non-fungible tokens (NFT)
Despite these developments, its price is almost entirely driven by various hype cycles impelled by tweets from popular personalities. Though these could lead to short-term gains, these events are incredibly unpredictable.
Terra Classic (LUNC)
Terra Classic (LUNC-USD) epitomizes the crypto that you should probably offload without hesitation, thanks to the dramatic collapse of the Terra network. Despite its developer’s best efforts to salvage the project following the implosion, it is unlikely to return to its winning ways anytime soon.
In early 2022, Terra was among the top altcoins to consider, with a genuine bull case. It boasted a powerful layer-1 network, a vibrant ecosystem of decentralized applications, and a hugely popular stablecoin with an innovative pricing model. Moreover, it even offered investors arbitrage opportunities for passive income. However, when its stablecoin pricing model collapsed, its prices plunged to a mere fraction of a penny. It hasn’t recovered since and is unlikely to mount a comeback anytime soon.
ApeCoin (APE-USD) is essentially a brainchild of Bored Ape Yacht Club (BAYC), the team behind the popular NFT complication in Bored Apes. The token experienced a surge in price following its initial offering price of $1 to a staggering $40 before swiftly retracing. However, it has lost virtually all its value in line with last year’s monumental slowdown in NFT volumes.
The primary interest in ApeCoin is the ability to stake and receive 90% of the rewards. Moreover, it could become one of the few currencies in the metaverse, a market worth billions down the road. Nevertheless, there are plenty of concerns over the sustainability of these rewards and BAYC’s ability to entice new users with its flashy new games and immersive metaverse experiences.
Dogecoin (DOGE-USD) is essentially a crypto born out of humor and never intended to have major developmental plans. Relying on the whims of Elon Musk’s comedic timing and the risk-on market sentiment in 2021, DOGE’s price skyrocketed by over 10,000%. However, like its peers, its value has tanked, exposing the holes in its fundamentals.
Perhaps one of the worst things about Dogecoin is its infinite supply, which continues to weigh down prices irrespective of demand. In contrast, Bitcoin has a supply of 21 million and derives value from its scarcity. Conversely, Dogecoin faces an ever-increasing supply, with a whopping 5 billion DOGE added annually, pushing down prices. Moreover, without any major real-world utility, it continues to lose value and keep its investors on their toes all the time.
The metaverse has its fair share of believers who envision it to become the next frontier of social communication. At the same time, a sizeable number of detractors view it as a fleeting trend. Decentraland (MANA-USD), arguably one of the biggest blockchain-based metaverse players, shot to new heights in late 2021 following Facebook’s name-change to Meta Platforms (NASDAQ:META). Moreover, the platform boasted millions in online real estate sales, contributing to its meteoric rise. Fast-forward to 2023, though, its stock has shed more than 80% of its value from its peak and continues to trade in the red.
As we saw with Meta’s most recent earnings call, the metaverse market is still in its infancy and will take time to reach its full potential. The company focuses on more feasible technologies, such as artificial intelligence, sidelining its metaverse plans. Consequently, MANA finds itself in a precarious position as it navigates the current macro-environment. Thus, it is one of the top cryptos to avoid in my book.
Blockchain music streaming platform, Audius (AUDIO-USD) presents an intriguing use case in a rather mundane landscape. Moreover, it boasts impressive collaborations with some of the top names in music, such as Louis the Child, deadmau5, and popular platforms, such as TikTok.
The blockchain’s foundation is not exactly new, effectively putting more weight behind its bear case. Audius claims its decentralized nature facilitates greater control over the content, better compensation, and superior audio quality. However, other platforms such as Bandcamp, Sound Cloud, and Tidal are apps that have been in the game much longer and are already addressing the above-mentioned pain points. Hence, Audius doesn’t offer much to its investors and is best avoided now. It’s surprisingly doing well in the market so far this year, but it’s mainly due to a recent price spike following its listing on Coinbase (NASDAQ:COIN).
Zcash (ZEC-USD) is privacy-focused with multiple use cases, but its future is under threat as regulatory headwinds gather momentum. Government entities over the years have sounded the alarm on the growing threat of privacy-focused cryptos such as Zcash and the need for additional legislative action. However, in the past year, the threats seem to be finally materializing.
For instance, the European Union last year made waves when it introduced more stringent know-your-client rules for crypto firms, effectively banning privacy coins ZEC. These rules mandate firms to collect and maintain information to identify clients, making transactions traceable, thereby limiting the appeal of privacy coins such as ZEC. Additionally, Dubai has also prohibited trading and other activities related to privacy-focused cryptocurrencies. Hence, this growing pressure makes Zcash and its peers among the top cryptos to avoid.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.