If you think stock market gains have been impressive since the pandemic bottom of March 2020, take a closer look at cryptocurrencies. Whereas the broad-based S&P 500 doubled in value, the total market cap of all digital currencies grew more than 1,450% between March 2020 and the end of 2021.
The crypto market has made investors rich in a very short amount of time. This is especially true for investors in meme coin Shiba Inu (CRYPTO:SHIB).
The blueprint for historic gains in Shiba Inu
In more than two decades of investing, I’ve seen some jaw-dropping single-year gains. But while five-digit percentage gains over 12 months are quite rare in the stock market, among cryptocurrencies, gains of 25,000% — even as high as 1,200,000% — have occurred in a relatively short time frame. But the roughly 46,000,000% that SHIB tokens gained in 2021 are astounding. The coin rose in value from $0.000000000073 to around $0.000034. An investment of just over $2 at midnight on Jan. 1, 2021 would have made a Shiba Inu investor a millionaire by year’s end.
Multiple factors worked in Shiba Inu’s favor last year to deliver such enormous gains in a short period.
Increased visibility of SHIB has certainly provided one of the biggest boosts. Even though Shiba Inu isn’t yet listed on Robinhood, it’s found a home on numerous other popular crypto exchanges. The launch of decentralized exchange ShibaSwap has helped too. New exchange listings and ShibaSwap have helped improve liquidity. Further, ShibaSwap has encouraged SHIB holders to stake their coins in order to earn passive income. Staking encourages holders to hang onto their tokens for a longer period of time.
No discussion of Shiba Inu’s historic 2021 can overlook the role the fear of missing out (FOMO) has played. At its peak in the fourth quarter, Bitcoin had gained 8,000,000,000% from its July 2010 debut price. With evidence that life-altering gains are possible, SHIB buyers haven’t been scared off by the possibility of a price reversion. In fact, some have used social media as a means to hype up the prospects of Shiba Inu heading higher.
Excitement over increased utility is palpable as well. Last year, Shiba Inu landed two major merchants: movie theater chain AMC Entertainment and tech-focused online retailer Newegg Commerce.
Lastly, Shiba Inu investors have exhibited clear excitement about the future. In 2022, developers should deploy the layer-2 blockchain upgrade known as Shibarium, which is designed to lower transaction fees. Eventually, non-fungible token (NFT)-based gaming is expected, too.
Can Shiba Inu hit $0.001 in 2022?
What’s crystal clear is that Shiba Inu optimists are mostly inelastic buyers. They believe significant upside awaits, even following a 46,000,000% gain last year. But can Shiba Inu really eat up additional zeroes after its decimal point in 2022? In other words, is a price target of, say, $0.001 really achievable this year?
The answer? Highly unlikely.
Although Shiba Inu seemingly outpaced all expectations in 2021, there are five core reasons its chances of hitting $0.001 in 2022 are extremely low.
To begin with, Shiba Inu doesn’t offer any genuine competitive advantage or differentiation. It’s an ERC-20 token build on the Ethereum blockchain that’s subject to the same processing lags and high transaction fees that occasionally plague the Ethereum network. While Shibarium may alleviate its transaction cost disadvantage, Shiba Inu still wouldn’t have any defining characteristics that would make it or its proposed ecosystem the preferred choice for merchants and persons wanting to pay with digital currencies.
A second issue is that Shiba Inu is being constantly diluted in the crypto space — not by new SHIB tokens, but rather by new blockchain-based projects. Cryptocurrencies that lack a competitive edge are constantly under attack by new projects that offer faster processing times and/or low transaction fees. Although many blockchain projects won’t amount to anything, at least some will provide operating advantages over Shiba Inu.
A third persistent problem for SHIB, which I’ve previously touched on, is its lack of real-world utility. Having already mentioned that it lacks a competitive edge, we can also see from real-world adoption that few merchants are accepting it as a form of payment. Online business directory Cryptwerk shows that only around 600 global merchants accept SHIB as a payment, with 44 of these “merchants” being nothing more than crypto exchanges. That’s only a little over 550 mostly obscure online businesses accepting SHIB, when there are over 500 million entrepreneurs worldwide. Its utility outside of a crypto exchange is almost nonexistent.
A fourth reason to be highly skeptical of Shiba Inu hitting $0.001 is the role (or should I say lack thereof) coin burn will play. Last year, Ethereum co-founder Vitalik Buterin, who was gifted around half of the circulating supply of SHIB, sent more than 410 trillion tokens to a dead blockchain address. With these coins now removed from circulation (i.e., burned), each remaining token is perceived to be worth more.
The issue is that 1) coin burn won’t be anywhere near 410 trillion tokens in 2022, or at any point in the future, and 2) having fewer SHIB in circulation doesn’t improve the effectiveness of the network in terms of transaction fees or block finality. Coin burn isn’t providing any tangible positive for investors.
Fifth and finally, history is simply not on Shiba Inu’s side. In previous instances where payment coins and payment-network protocol tokens rallied anywhere from 24,000% to 461,000% in a relatively short time frame, they subsequently retraced by 93% to 99% over a two-year period. Given that Shiba Inu gained 46,000,000% in 12 months, history would suggest that an equally epic retracement awaits.
While anything is possible in the cryptocurrency space, there’s no reason to believe Shiba Inu will come anywhere close to $0.001 (a $549 billion market value) in 2022.
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.