A massive crypto rally in the first two months of the year means that nearly every digital currency is in the black. But not every coin is up by the same amount. Market stalwarts like Bitcoin and Ethereum are up 40.91% and 36.24%, respectively, while a more-speculative one like Solana is up more than 125% for the year.
Meanwhile, there are a handful of cryptos that are turning in lackluster returns in comparison. XRP (XRP +1.97%), up only 11% for the year, and Dogecoin (DOGE +2.80%), up only 15% for the year, fall into this category. Here's a closer look at three cryptos that will likely underperform the market this year.
1. Dogecoin
On the surface, Dogecoin seems to have a lot of potential. At one point, it was up nearly 30% for the year and attracted a lot of attention in January, when investors were piling into meme coins.
But there are no underlying fundamentals to support a sustained rally, and Dogecoin seems to have crashed back down to earth in February. For example, there is still no plan for Dogecoin to transform into a proof-of-stake blockchain, and until that happens, its overall utility is going to be limited.
Moreover, almost all of its short-term price swings can be chalked up to a single factor: Elon Musk. When Musk acquired Twitter, speculation immediately mounted that he would integrate the coin into Twitter as a payment option.
But so far, that hasn't happened, and if anything, Musk has pushed any type of Dogecoin integration further down the road. As a result, I'm very bearish on the crypto, which continues to be a meme coin with very limited utility at a time when there are plenty of dog-themed meme tokens to choose from.
2. ApeCoin
When ApeCoin (APE +0.99%) started trading in March 2022, it did so at almost the exact peak of the non-fungible token (NFT) market. Over the past year, the NFT market has cratered, and that has dragged down the fortunes of ApeCoin accordingly.
After all, ApeCoin is the governance token of the Bored Ape Yacht Club ecosystem, so if the NFT market is performing poorly, then there is a good chance that Bored Ape NFTs are going to be performing poorly as well. Until there is a rebound in the NFT market, it's hard to trust the long-term outlook for ApeCoin.
Image source: Getty Images.
Moreover, there are a number of complicating factors for ApeCoin that make it even more unattractive from an investment perspective. For example, Yuga Labs, the creator of the Bored Ape Yacht Club, is now facing potential regulatory action from the Securities and Exchange Commission (SEC), which claims this NFT collection could be an unregistered securities offering.
Yuga Labs is also facing a class-action lawsuit from investors, potentially leading to more volatility for ApeCoin.
CRYPTO: APE
Key Data Points
And there has been tremendous debate over the tokenomics of the coin. Specifically, the debate concerns the token unlock schedule for ApeCoin.
For the next three years, ApeCoin will be releasing millions of new coins into the market on a monthly basis. Just based on the law of supply and demand, this could have a serious downward impact on the price.
When ApeCoin unlocked 7.3 million coins in February, it immediately led to a 10% dip in price. Now imagine this happening on a monthly basis until March 2026. No, thank you.
3. XRP
XRP is a former crypto darling that is now in a state of limbo as it awaits a decision in the court case that the SEC brought against it in 2020. According to the SEC, XRP is a security, not a cryptocurrency.
Unless XRP gets a favorable ruling in the case, it could face a significant deterioration in its long-term prospects within the U.S. market. While it has diversified internationally, being limited in its ability to operate in the U.S. market is a big negative. As it stands now, some U.S.-based cryptocurrency exchanges have even suspended trading in the coin.
When XRP first made a name for itself nearly a decade ago, its blockchain-based Ripple payment network was innovative and best-in-class. At that time, only a handful of cryptos existed, and Ripple looked like the future of blockchain payments.
XRP offered cheap, fast, and secure cross-border payments to anywhere in the world. Companies such as Western Union (WU 0.39%) and Moneygram International (MGI +0.00%) were eager to partner with it. But that's no longer the case. There are other blockchain payment options, and all of them involve far less regulatory risk.
Buy, sell, or hold?
Unfortunately, I don't see any of these three cryptos rebounding anytime soon. While all of them have shown the potential to pop based on short-term swings in investor sentiment, I simply don't see the types of strong catalysts needed for long-term investment success. For now, I'm avoiding them and looking for better options elsewhere in the crypto market.
