Why You Need to Have an Exit Strategy in Place for Cryptocurrencies Like Dogecoin and SHIBA Inu!

Cryptocurrencies such as Dogecoin and SHIBA Inu are high-risk bets due to the lack of utility associated with these tokens.

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It’s advisable to hold your investments for several years to benefit from compounded gains. For example, investors such as Warren Buffett have created significant wealth in the equity market by holding blue-chip stocks such as Coca-Cola for multiple decades. The same strategy, when applied to cryptocurrencies, has also reaped benefits, as the prices of Bitcoin and Ethereum have risen by 8,900% and 41,300%, respectively, in the last five years.

If you are bullish on the long-term prospects of the cryptocurrency space, it makes sense to keep holding Bitcoin and Ethereum in your portfolio. These coins have gained massive traction in recent years, driven by their widespread adoption and real-world utility.

Comparatively, meme-based cryptocurrencies such as Dogecoin and SHIBA Inu have returned 13,250,880% and 7,300%, respectively, since August 2020. However, compared to other digital assets, both Dogecoin and SHIBA Inu cannot be considered viable investments in the future, and here’s why.

Dogecoin is valued at a market cap of US$35.96 billion

Valued at a market cap of US$35.96 billion at the time of writing, Dogecoin is now the 10th-largest cryptocurrency in the world. Billionaires including Elon Musk and Mark Cuban have tweeted in favour of Dogecoin multiple times in the past. In fact, according to Cuban, Dogecoin is the strongest digital asset when viewed as a medium of exchange. His NBA team also accepts Dogecoin as payment for merchandise and ticket sales.

The number of enterprises that accept Dogecoin as payment has risen from 1,662 as of Q3 of 2021, up from just 154 three years back. Further, over 70% of these businesses are located outside the U.S.

However, Dogecoin is not a cryptocurrency that allows users to undertake complex programs such as dApps, or decentralized applications. Further, the total number of Dogecoins in circulation is a staggering 132 billion, and this number is expected to increase by five billion each year. The continuous mining of the cryptocurrency with no limit makes Dogecoin inflationary in nature and it cannot be viewed as a store of value.

SHIBA Inu has a market cap of $37.39 billion

Valued at a market cap of $37.39 billion, SHIBA Inu is the ninth-largest cryptocurrency right now. An investment of just $100 in SHIB token back in August 2020 would be worth a mind-boggling $13.3 million today, as this cryptocurrency has rallied at an astonishing pace since its launch.

But the token is accepted by less than 100 merchants, according to data from Cryptwerk. The average holding period for SHIB is also less than two weeks, emphasizing that investors view the digital asset as a speculative bet rather than a viable investment.

SHIBA Inu is emotion based and momentum driven, making it vulnerable to wild swings. According to cryptocurrency experts, the token has no utility outside a trading exchange, as it does not enjoy any competitive advantages in terms of network capacity, transaction fees, or processing times.

The Foolish takeaway

SHIBA Inu and Dogecoin should be viewed as short-term investments, similar to meme-based stocks popular on social media platforms such as Reddit. These tokens carry significant risks given their market-thumping gains in the past year, and investors should be ready for a steep pullback if markets turn bearish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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