Better Buy: Shiba Inu vs. Ethereum

 Shiba Inu (CRYPTO:SHIB) and Ethereum (CRYPTO:ETH) have been making headlines lately for their record-breaking returns. Ethereum recently reached a new high of around $4,500 per token, while the price of Shiba Inu has soared by a staggering 107% over the past two weeks. 

While both cryptocurrencies may be tempting investments, they're very different in many ways. If you're considering investing in either Shiba Inu or Ethereum, here's how to decide which one is the better buy.

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Shiba Inu: What you need to know

Shiba Inu has experienced explosive growth over the past few weeks, and its returns have soared past its competitors. This includes Ethereum, which is up only around 33% over the past month, compared with Shiba Inu's 231% increase in the same time period. 

Those significant returns can make Shiba Inu a tempting investment, but its short-term nature also makes it incredibly risky.

Similar to Dogecoin and meme stocks such as GameStop, Shiba Inu's returns are primarily due to its community of retail investors. These investors have artificially inflated Shiba Inu's price by investing heavily, only to sell once the price peaks.

In other words, the cryptocurrency's dramatic price increases have little to nothing to do with its fundamentals as an investment. Shiba Inu doesn't have any significant competitive advantages over other cryptocurrencies, which will make it tough for it to continue growing over the long term. Once its followers eventually sell their investments and move on to a different stock or cryptocurrency, Shiba Inu's price will likely plummet.

This doesn't necessarily mean that it's impossible for Shiba Inu to see long-term success. However, it will need to find a way to stay competitive in the crypto space. Without any serious competitive advantages, it will remain an incredibly risky investment.

Ethereum: Pros and cons

Though there are also risks to consider when investing in Ethereum, it's a fundamentally stronger investment than Shiba Inu.

Ethereum does have several competitive advantages within the crypto industry, and one of its strongest features is its blockchain technology. The Ethereum blockchain is widely used for various applications including non-fungible tokens (NFTs) and decentralized finance (DeFi). It can also host smart contracts, which allow two parties to execute an agreement without an intermediary such as a lawyer.

In addition, Ethereum is in the process of transitioning from a proof of work (PoW) mining protocol to a proof of stake (PoS) protocol. This means that the mining process will no longer involve high-powered computers solving complex puzzles, which will decrease its energy consumption and make Ethereum far more environmentally friendly. 

There are still risks involved, however. The biggest risk of investing in Ethereum is that cryptocurrency, in general, may not succeed over the long term. Although cryptocurrency has existed for more than a decade, it's still speculative at this point, and nobody knows whether it will ever become widely adopted.

If you're thinking about investing in Ethereum, make sure you have a relatively high tolerance for risk. Also, only invest money you would be comfortable losing, and double-check that the rest of your portfolio is well-diversified. This way, if Ethereum doesn't perform well over time, it won't sink your entire portfolio.

Investing in cryptocurrency can be rewarding, but it's important to do your research before you buy. Not all investments are created equal, and some cryptocurrencies are stronger than others. By weighing the risks and rewards, it will be easier to choose the investment that's right for you.

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.