Over very long periods of time, the stock market has stood on a pedestal above all other investing channels. Even though it won’t outpace the returns of bonds, gold, or housing every year, the stock market offers a much higher average annual return over the long run.
But the short run is a completely different story. Since the pandemic bottom in March 2020, the aggregate value of all cryptocurrencies has rocketed from $141 billion to nearly $1.9 trillion. That’s a gain of almost 1,240%, for those of you keeping score at home.
While the “blue-chips” of crypto, Bitcoin and Ethereum, rightly get a lot of credit for this large nominal increase in market value, it’s momentum-driven meme coin Shiba Inu ( SHIB 0.62% ) that’s lured numerous new investors into the crypto arena over the past 15 months.
Shiba Inu-inspired tokens were on fire in 2021. Image source: Getty Images.
Things couldn’t have gone better for Shiba Inu last year
Last year, Shiba Inu delivered what might be the single greatest annual return we’ll ever witness. When the year began, a single SHIB token could be purchased for a minute $0.000000000073. If you’re wondering why there are so many zeroes after the decimal point, keep in mind that the initial coin supply was set at 1 quadrillion. Between midnight on Jan. 1, 2021, and Oct. 27, 2021, when tokens hit an all-time intra-day high of $0.00008841, SHIB gained a jaw-dropping 121,000,000%! Even following a pullback to end last year, Shiba Inu increased by approximately 46,000,000%.
Gains of this magnitude are virtually unheard of. Thankfully for Shiba Inu and its investors, a couple of factors worked in its favor.
For example, visibility increased dramatically in 2021. Numerous cryptocurrency exchanges accepted SHIB for listing, which vastly improved its liquidity. Additionally, decentralized exchange ShibaSwap launched in July, further lifting liquidity and allowing investors to stake their coins to earn passive income. Since staking became popular late last year, the median hold time for SHIB on leading crypto exchange Coinbase Global has soared from six days to 115 days, as of April 18, 2022.
Another reason Shiba Inu was virtually unstoppable in 2021 is cryptocurrency trading dynamics. With publicly traded stocks, it’s relatively easy for pessimists to sell shares short or purchase a derivative, such as a put option. In the cryptocurrency arena, it’s a lot tougher for pessimists to bet against these assets. For instance, some cryptocurrency exchanges don’t allow short-selling. Also, with the exception of Bitcoin, there are no derivative or future contracts for skeptics to buy. This created a natural buy bias that allowed social media-driven momentum to launch SHIB to the moon.
Image source: Getty Images.
Could Shiba Inu hit $1 in five years?
However, Shiba Inu’s faithful don’t believe their beloved coin is done pushing higher. Despite being quite a ways away from even hitting a penny, calls for SHIB to hit $1 per token persist on social media.
Based on Shiba Inu’s per-coin price of $0.00002515 at the time of this writing, hitting $1 would represent a nearly 4,000,000% increase. Keep in mind that SHIB returned over 10 times that amount last year — so nothing is impossible.
But in order to hit $1 per token in five years (by 2026), Shiba Inu would need to flawlessly execute on a slew of upcoming projects, innovations, and catalysts.
As an example, the launch of layer-2 blockchain project Shibarium needs to occur sooner than later, and work flawlessly once launched. Since Shiba Inu is an ERC-20 token built on the Ethereum blockchain, it’s exposed to the same high transaction fees and slow processing times that occasionally plague the popular Ethereum network. Shibarium’s sole purpose is to substantially lower transaction fees, to make SHIB-based transactions more cost-effective and attractive.
The reason it’s so important for developers to get Shibarium launched is that pretty much all future projects rely on low-cost transactions. For instance, Shiba Inu’s developers have made no secret of their desire to launch non-fungible token (NFT)-based gaming, and sell digital plots of land, known as “Shiba Lands,” in their own metaverse. However, NFT marketplaces can’t take shape until the high fees associated with each transaction come way down. Being a successful early player in the NFT gaming space could go a long way toward supporting a higher valuation.
Yet the biggest catalyst needed would likely be large coin burn events. Coin burn describes the process of sending tokens to dead blockchain addresses where they can no longer be accessed. Just as publicly traded companies repurchase their own common stock to make each remaining share that much more valuable, coin burn attempts to do the same within the crypto space.
Image source: Getty Images.
Adding more zeroes is the more likely outcome for Shiba Inu by 2026
Although Shiba Inu is sitting on far more projects and catalysts than it was at this time last year, expecting everything to go flawlessly isn’t consistent with how innovation works in the cryptocurrency arena. My belief is that it’s more likely Shiba Inu will gain, not remove, additional zeroes after its decimal point by 2026.
Fundamentally speaking, a valuation of $1 per token without a massive coin burn event makes no sense. Based on an estimate of 549 trillion SHIB still in circulating supply, a $1 per coin price would give Shiba Inu a value ($549 trillion) that’s more than five times global gross domestic product. For context, Apple is the largest publicly traded company in the U.S., with a market cap of $2.7 trillion.
Something else to consider is that Apple generated more than $112 billion in operating cash flow last year and leads by innovation. Meanwhile, Shiba Inu is nothing more than a payment coin that’s reliant on Ethereum’s blockchain. Worse yet, it’s not even a particularly useful payment coin. According to online business directory Cryptwerk, only 659 mostly obscure merchants worldwide are willing to accept SHIB as a form of payment.
As noted, reaching $1 would require a huge amount of coin burn. However, this seems virtually impossible given investors’ desire to hang onto their coins, as well as the aforementioned minimal use case for SHIB. Although some businesses may be burning a small percentage of coins with each transaction, the number of tokens being sent to dead blockchain addresses is negligible compared to the estimated 549 trillion SHIB still in circulating supply.
Another issue is that Shiba Inu fails to stand out in an increasingly crowded space. While the launch of NFT-based gaming may help, it’s worth pointing out that interest in NFTs has been waning significantly over the past couple of months.
Lastly, history would suggest a massive price reversion awaits Shiba Inu — and is already underway. When I examined the performance of other payment coins and protocol tokens on payment networks that delivered life-altering short-term gains, I found that virtually all of them (Bitcoin was the exception) fell by 93% or more within the 26 months following their eventual peaks. With SHIB gaining 121,000,000% in less than 10 months last year, the alarm bells should be ringing for current and prospective investors.
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.
