Investing in cryptocurrency can be an excellent way for investors to build wealth and bet against inflation. But all tokens aren’t created equal. Let’s explore why two meme coins, Dogecoin ( DOGE 2.47% ) and Floki Inu ( FLOKI ), could face significant downside over the long term.
Down by a staggering 84% from its all-time high of $0.74 (reached in May 2021), Dogecoin’s price is collapsing. The crash looks likely to continue because of its weak fundamentals and competition from newer meme coins boasting superior functionality and branding.
Dogecoin started the meme coin craze when it launched in 2013. And with a market cap of $15 billion, it is still the 13th-largest cryptocurrency in the world. But it is no longer the only game in town. Assets like Shiba Inu have copied its dog-themed branding while offering more functions such as smart contracts (self-executing programs stored on the blockchain).
Dogecoin also has technical challenges like an inflationary supply.
According to data from coinmarketcap.com, there are currently 133 billion units of Dogecoin in circulation. And this number is programmed to increase by 5 billion every year, forever.
The inflation could make Dogecoin’s price fall if demand growth isn’t high enough to offset the expanding supply — and this is bad news for long-term investors. The asset’s extreme volatility also makes it an unsuitable medium of exchange because it exposes merchants to exchange rate risk when they convert it to dollars or other currencies.
Floki Inu is one of several coins designed to piggyback off the hype generated by Dogecoin and Shiba Inu. Unfortunately for investors, this strategy no longer seems to work — sending the Floki price down 92% from its all-time high reached in early November. But the token’s failed advertising strategy could mean the pain is just beginning.
Floki Inu is one of the few cryptocurrencies that have made significant use of real-world print advertising. According to the U.K.-based Financial Times, the coin’s developers engaged in a “marketing blitz” that included signs on London’s subway system stating “Missed Doge? Get Floki” to encourage investors to bet on the asset.
Cryptocurrency often falls outside of existing financial regulations. But in March, the U.K’s advertising watchdog banned the Floki ads because they may take advantage of consumers’ ignorance of the potential dangers of investing in cryptocurrency. Floki Inu’s problems didn’t stop there.
According to data from coinmarketcap.com, 100 wallets control an alarming 71% of the coins in circulation, which makes the asset vulnerable to rug pulls, which are scams that occur when majority holders manipulate an asset’s price to their benefit.
Hype generally doesn’t last
Meme coins can generate massive returns in the short term. But they often fail to maintain their momentum when the hype dies down. Both Dogecoin and Floki Inu look poised for continued downside because of their weak fundamentals and limited utility.
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.