Dating back over a century, there has been no more consistent creator of wealth than the stock market. While stocks don’t outperform bonds, gold, or bank certificates of deposit every year, their average annual return is significantly higher than other asset classes over very long periods of time.

But over the past couple of years, a number of widely followed cryptocurrencies have overtaken the broader market on several occasions.

Investors can’t stop bidding on cryptocurrencies

The buzz around digital currencies has taken on a life of its own. For starters, the regulations surrounding cryptocurrencies and the many exchanges that allow digital currency trading are relatively minimal. One of the main selling points of the push towards blockchain-backed digital tokens is the lack of government involvement.

Additionally, there is a clear buying bias when it comes to cryptocurrencies. In order to bet against popular cryptos, short sellers (investors who bet against a security) often have to jump through the hoops and buy derivatives, such as futures. Almost all of the more than 12,700 cryptocurrencies that can be invested have no derivatives available for pessimists to buy or bet against. Without short sellers to aid in price discovery, there is a clear buying bias.

Cryptocurrency investors are also excited about the longer term prospects for blockchain technology in both the payment space and non-payment applications.

On the payments side, transactions executed by blockchain have the potential to validate and settle cross-border transactions in just seconds. In comparison, the existing financial infrastructure can delay the process of validating and settling cross-border payments for up to a week.

When it comes to non-financial applications, blockchain technology could help reduce paper traces in the supply chain, which would be welcome given the current safeguards of cargo ships in ports around the world.

These digital tokens have generated mind-blowing returns

Ultimately, this excitement about the evolution of payments and non-financial blockchain applications has driven a number of popular digital currencies up by a four, five, or even six-digit percentage since their inception. Still, this pales in comparison to two cryptocurrencies, which have returned over 5,000,000% and just under 7,700,000,000% (or 7.7 billion percent) since their inception.

The Shiba Inu dog breed has been a popular source of crypto inspiration. Image source: Getty Images.

Shiba Inu: 5,041,076% gain

Shiba inu (CRYPTO: SHIB) is a self-proclaimed coin that is simply unstoppable since its commercial debut on August 1, 2020. Capped at 1 quadrillion coins (not a typo!), Shiba Inu could be picked up for $ 0.00000000051 per token during its starts day, according to data from CoinMarketCap.com. But as of last weekend, a single piece of Shiba Inu was worth $ 0.00002571. Although nominally inexpensive, this represents a gain of over 5 million percent in about 14.5 months.

SHIB’s stratospheric gains appear to come from crypto investors’ love of pet-themed coins. As many people are probably aware, the Shiba Inu dog breed was also the inspiration behind Dogecoin, which has gained over 76,000% since its commercial debut in December 2013.

To build on this point, Shiba Inu relies on You’re here CEO Elon Musk, who recently adopted a Shiba Inu breed dog named Floki and tweeted about him a few times. For Musk, moving the crypto market with a tweet is nothing new.

The launch of the decentralized exchange ShibaSwap three months ago has also played a role in increasing the buzz around SHIB. ShibaSwap allows investors to wager their coins to earn interest. More importantly, this staking process could encourage SHIB owners to hold onto their investment for longer, thus reducing wild swings in its price.

While there is no denying that these gains are incredible in such a short period of time, I suspect it will not last. For starters, Shiba Inu lacks real-world utility. According to the Cryptwerk online business directory, only 88 mostly obscure companies around the world accept SHIB as a payment method. For context, there are well over 500 million entrepreneurs in the world, as well as over 32 million businesses in the United States alone.

In addition, data from the crypto exchange and ecosystem Coinbase shows that the average detention period of the Shiba Inu is only six days. This suggests that the traders are in control here and that they are there to make a quick buck. Without clear fundamental catalysts – sorry, Elon Musk’s Floki tweets are not “clear fundamental catalysts” – it’s hard to see how SHIB is hanging on to this monumental race any higher.

Image source: Getty Images.

Bitcoin: 7,698,609,900% gain

If you think Shiba Inu’s gains are jaw-dropping, the gains for Bitcoin (CRYPTO: BTC) since its very first trading days have been nothing short of a life changing. Bitcoin had a starting price in July 2010 of $ 0.0008 per token (i.e. eight hundredths of a penny). On October 16, it cost $ 61,588.88 to buy a single token. That’s a gain of almost 7.7 billion percent in just over 11 years.

To put it in perspective, you could have bought the equivalent of 12,500 Bitcoins in July 2010 for $ 10, with no transaction fees. That $ 10 investment would be worth $ 769,861,000 as of October 16, assuming you haven’t sold.

The “why” to “Why Bitcoin? Has a lot to do with its leading edge in the market and its perceived scarcity. Bitcoin was the first cryptocurrency to be traded and traded for commodities, and its coin supply is capped at a relatively low $ 21 million. With mining rewards being cut in half every four years, it will take around 2,140 before all Bitcoins are “minted”.

Additionally, Bitcoin benefits from an improved use case. On September 7, 2021, El Salvador became the first country to adopt Bitcoin as legal tender. This movement is part of a larger trend towards acceptance of Bitcoin by more companies around the world.

But there are just as many reasons to be skeptical about the world’s largest cryptocurrency. For example, the scarcity of Bitcoin should be marked with an asterisk. Instead of physical scarcity, computer algorithms are all that define Bitcoin’s token supply. Community consensus has the capacity to make a difference. While this is unlikely, the probability that Bitcoin’s token supply will increase is not 0%.

Bitcoin is also constantly diluted by the introduction of new tokens and blockchain projects. There have been many generations of blockchain projects that are, frankly, better than Bitcoin. As a payment network, Bitcoin’s blockchain is more expensive and takes longer to validate and settle transactions than many other popular payment-oriented coins.

While I don’t deny Bitcoin’s first-mover advantage, I still see limited utility, bogus scarcity, and no real payout advantage, compared to its peers.