For well over a century, the stock market has been a wealth-creating machine. Even though stocks might underperform other investment channels from time to time, the average annual return of equities over the long run leaves bonds, gold, and housing in the dust.
But it’s an entirely different story if the view is narrowed to just the past couple of years. Whereas the benchmark S&P 500 is up approximately 90% since its March 2020 pandemic low, the aggregate value of all digital currencies has catapulted higher by 791% over the same time frame.
Although crypto’s blue chips, Bitcoin and Ethereum, have played a big role in this nominal value increase, it’s meme coin Shiba Inu (CRYPTO: SHIB) that’s been largely responsible for luring new investors into the cryptocurrency space.
Shiba Inu produced once-in-a-lifetime gains in 2021
If you’re wondering how a relatively obscure crypto token came out of the woodwork to inspire more than 1.1 million coinholders, look no further than its historic return in 2021.
According to data from CoinMarketCap.com, investors with the luck, stomach, and wherewithal could have purchased Shiba Inu tokens for $0.000000000073 at the stroke of midnight on Jan. 1, 2021. Less than 10 months, on Oct. 27, these same coins would change hands at an all-time intraday high of $0.00008841. Having eliminated six zeroes after its decimal point, SHIB gained a jaw-dropping 121,000,000%. In other words, a $1 investment would have turned $1.2 million in under 10 months.
Even accounting for a significant pullback in the final two months of 2021, Shiba Inu ended the year higher by roughly 46,000,000%. This may well be the largest single-year gain we ever witness for an asset — and it’s more than enough of a dangling hook to attract new money and investors.
It also didn’t hurt that cryptocurrency market dynamics were working in its favor. Whereas it’s relatively easy for skeptics to short-sell a stock or perhaps buy a derivative, such as a put option, there are no derivatives to bet against Shiba Inu. Further, some crypto exchanges don’t even allow short selling. This created a natural buy bias that, coupled with social media buzz, helped send Shiba Inu to the moon.
Is SHIB eventually headed to $0?
Unfortunately, one of the world’s most-popular digital currencies is unlikely to enjoy an encore performance in 2022 — or ever again. While many SHIB holders are asking if their prized token can hit $0.01, perhaps the more pressing long-term query is, “Could Shiba Inu eventually fall to $0?”
Though it might be difficult to envision Shiba Inu giving back all of its 2021 gain, and then some, over time, there’s no shortage of reasons to be skeptical about its future.
To begin with, Shiba Inu lacks anything resembling a competitive edge or lasting differentiation. At its core, it’s an ERC-20 token built on the Ethereum blockchain. This means SHIB is nothing more than a glorified payment coin. While Bitcoin has seen plenty of success as a payment coin, it’s also riding a first-mover advantage. There’s nothing special about Shiba Inu’s payment use case. In fact, its ties to the Ethereum network have made transactions using SHIB quite costly.
Building on this previous point, Shiba Inu has virtually no use case as a payment token. Online business directory Cryptwerk lists only 659 merchants as accepting SHIB for payment as of June 7, 2022. Worse yet, nearly 20% of these 659 merchants are nothing more crypto services, such as brokerages and digital wallet services. This means only 533 mostly obscure businesses in a world with over 500 million entrepreneurs is accepting Shiba Inu as payment.
Coin burn also appears unlikely to support Shiba Inu’s lofty valuation. The idea behind coin burn is similar to that of a publicly traded company repurchasing its stock to (hopefully) increase the value of its shares. With fewer coins in supply, each remaining token should be, in theory, more valuable. Although Ethereum founder Vitalik Buterin was able to burn 41% of SHIB’s 1 quadrillion token supply with the click of a button — Buterin was gifted half of Shiba Inu’s coin supply by its mysterious founder, Ryoshi — no future burn events will come close to this. With hundreds of trillion of SHIB still in circulation, coin burn is unlikely to provide any lasting spark.
Even history is Shiba Inu’s enemy. It’s not uncommon for life-altering gains in the crypto space to be followed by reversions ranging from 93% to 99%-plus in the roughly two years following an all-time high. For instance, privacy coin Verge — privacy coins obfuscate the sender and receiver of a payment — gained around 1,200,000% in a short time frame and went on to lose 99.6% of its value. Keep in mind that SHIB gained 100X 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 that lie ahead for this ultra-popular digital currency, let’s return to the question at hand: Could Shiba Inu eventually go down to $0?
My surprising response (drum roll): no.
Shiba Inu has the luxury of more than 1.17 million holders excited about its future. Even if non-fungible token (NFT)-based gaming development and the project’s metaverse ambitions completely face-plant in the coming years, SHIB’s large ownership base would likely buy the dips and keep it from being worthless (i.e., $0).
Also, Shiba Inu’s minimal real-world utility will still likely count for something in the value column. While it’s missing out on more than 500 million entrepreneurs, SHIB’s acceptance by slightly more than 500 companies worldwide should keep it from going to absolute $0.
On the other hand, the aforementioned headwinds Shiba Inu is facing aren’t going away. It hasn’t demonstrated anything that’ll allow it to stand out in an increasingly crowded cryptocurrency space. There’s also no clear connection that coin burn will provide any tangible benefit to a token that was largely driven by crypto market dynamics and social media hashtags. Although absolute $0 may not be in the cards over the long run, reading numerous zeroes and completely retracing its 2021 gains might be.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in 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.