For more than a century, the stock market has been a machine for creating wealth. Even though equities can sometimes underperform other investment channels, the average annual return of equities over the long term leaves bonds, gold and housing in the dust.
But it’s a whole different story if we limit ourselves to the last two years. While the reference S&P500 has risen around 90% since its pandemic low in March 2020, the aggregate value of all digital currencies has catapulted higher by 791% over the same period.
Although the crypto blue chips, Bitcoin and Ethereumplayed a big part in this increase in face value, it’s coin meme shiba inus (CRYPTO: SHIB) this has been largely responsible for attracting new investors to the cryptocurrency space.
Shiba Inu produced once-in-a-lifetime gains in 2021
If you’re wondering how a relatively obscure crypto token emerged from the woodwork to inspire over 1.1 million coin holders, look no further than its historic comeback in 2021.
According to data from CoinMarketCap.com, investors with luck, stomach, and means could have purchased Shiba Inu tokens for $0.000000000073 at the stroke of midnight on January 1, 2021. Less than 10 months, October 27 , those same coins would change hands at an all-time intraday high of $0.00008841. After eliminating six zeros after its decimal point, SHIB gained 121,000,000%. In other words, a $1 investment would have returned $1.2 million in less than 10 months.
Even taking into account a significant pullback in the last two months of 2021, Shiba Inu ended the year up around 46,000,000%. This may be the biggest gain ever for an asset in a single year – and it’s more than a dangling hook to attract new funds and investors.
It also didn’t hurt that the dynamics of the cryptocurrency market were working in his favor. While it is relatively easy for skeptics to short a stock or perhaps buy a derivative, such as a put option, there are no derivatives to bet against Shiba Inu. Moreover, some crypto exchanges do not even allow short selling. This created a natural buying bias which, coupled with social media buzz, helped send Shiba Inu to the moon.
Is SHIB finally heading towards $0?
Unfortunately, one of the world’s most popular digital currencies is unlikely to see a booster performance in 2022 – or ever again. With many SHIB holders asking if their precious token can reach $0.01, perhaps the most pressing long-term question is, “Could Shiba Inu eventually drop to $0?”
While it might be hard to imagine Shiba Inu giving back all of their 2021 gain and then some, over time, there are plenty of reasons to be skeptical about their future.
For starters, Shiba Inu lack anything resembling competitive advantage or lasting differentiation. At its core, it is an ERC-20 token built on the Ethereum blockchain. This means that SHIB is nothing more than a glorified payment coin. While Bitcoin has enjoyed great success as a cash coin, it also enjoys a first-mover advantage. There is nothing special about the Shiba Inu payment use case. In fact, its ties to the Ethereum network have made transactions using SHIB quite expensive.
Building on that previous point, Shiba Inu has virtually no use case as a payment token. The Cryptwerk online business directory lists only 659 merchants as accepting SHIB for payment as of June 7, 2022. Worse still, nearly 20% of those 659 merchants are nothing more than crypto services, such as brokerages. and digital wallet services. This means that only 533 mostly obscure businesses in a world of over 500 million entrepreneurs accept Shiba Inu as payment.
Coin burning also seems unlikely to sustain Shiba Inu’s high valuation. The idea behind coin burning is similar to a publicly traded company buying back its shares to (hopefully) increase the value of its shares. With fewer coins available, each remaining token should, in theory, be more valuable. Although Ethereum founder Vitalik Buterin was able to burn 41% of SHIB’s 1 quadrillion token supply with one click – Buterin was given half of Shiba Inu’s coin supply by his mysterious founder, Ryoshi – no future engraving event will come close to this. With hundreds of trillions of SHIBs still in circulation, burning the coins is unlikely to produce a lasting spark.
Even history is the enemy of the Shiba Inu. It is not uncommon for life-changing gains in the crypto space to be followed by reversions ranging from 93% to 99% and more within about two years of an all-time high. For example, the privacy room Edge — Private coins obscure the sender and receiver of a payment — gained about 1,200,000% in a short time and lost 99.6% of their value. Keep in mind that SHIB gained 100 times that amount in less than 10 months and has since lost nearly 90% of its value.
Now that you’re aware of the significant challenges awaiting this ultra-popular digital currency, let’s get back to the question: Could Shiba Inu eventually go down to $0?
My surprising answer (drum roll): no.
Shiba Inu has the luxury of having over 1.17 million owners excited about its future. Even if the development of games based on non-fungible tokens (NFT) and the metaverse ambitions of the project are completely confronted in the coming years, SHIB’s broad base of ownership would likely buy the drops and prevent it from being worthless. (i.e. $0).
Also, the Shiba Inu’s minimum actual usefulness will likely count towards something in the value column. Although it’s over 500 million entrepreneurs short, SHIB’s acceptance by just over 500 companies worldwide should keep it from hitting absolute zero dollars.
On the other hand, the aforementioned headwinds that Shiba Inu face don’t go away. It hasn’t demonstrated anything that would make it stand out in an increasingly crowded cryptocurrency space. Nor is there a clear connection that coin burning will bring tangible benefit to a token driven largely by crypto market dynamics and social media hashtags. While absolute $0 might not be in the long-term charts, reading plenty of zeros and fully retracing its 2021 gains might be.
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Sean Williams has no position in the stocks mentioned. The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.