Controversial cryptocurrency Shiba Inu ( SHIB 1.43% ) has declined 35% so far this year, which is a continuation of a much steeper 76% decline that kicked off in October 2021. The broader crypto market is amid a sell-off, which hasn’t helped Shiba Inu’s cause.
Still, the dog-inspired meme token delivered a staggering 43,800,000% return for full-year 2021, making millionaires out of investors who purchased as little as $2.29 worth of Shiba Inu on Jan. 1 and held on.
With enthusiasm cooling, the reasons for selling Shiba Inu are mounting, but there is one interesting case for owning some as part of a diverse portfolio.
The first reason to sell: Regulation
One of the most popular features of cryptocurrencies is their decentralized nature, providing investors with a veil of anonymity and falling outside the traditional rules and regulations applied to the financial system. But that’s both a gift and a curse.
While it sounds nice to avoid reporting your cryptocurrency activity to the Internal Revenue Service (IRS) and, therefore, avoid taxes, there are substantial benefits to regulation. For example, your cash account with any bank in the U.S. is protected by a government guarantee of up to $250,000. So, if that bank fails, your money remains safe. That luxury is not afforded to holders of cryptocurrencies.
In fact, some popular crypto brokers in the U.S. have disclosed their inability to get adequate levels of insurance to protect their clients’ holdings. For a broker like Robinhood, which holds $22 billion worth of tokens on behalf of clients, a hack or general financial failure of that company could result in catastrophic losses for its customers.
Still, despite the benefits of regulation, instating them would eliminate many of the decentralized, anonymous characteristics of the crypto industry, which would diminish some of the competitive advantages of the asset class compared to traditional currencies. That’s exactly what the U.S. government is proposing. As soon as 2023, crypto brokers may be required by law to report cryptocurrency investing activity to the IRS, making their clients liable for taxes on their gains when they sell, exchange, or spend their tokens.
Additionally, the Securities and Exchange Commission (SEC) is exploring ways to regulate crypto exchanges to impose securities-level audits and compliance standards to reduce market manipulation.
Of course, these changes could hurt the entire industry, not just Shiba Inu. But it could trigger a flight to quality for investors, where they seek shelter in the biggest and best tokens like Bitcoin as opposed to more speculative vehicles like Shiba Inu.
The second reason to sell: Math
That’s right: math. And the numbers are quite simple. There has been plenty of speculation in the Shiba Inu community about the potential returns the token could generate from here. Could Shiba Inu soar to $1, for example? It’s unlikely.
There are 589 trillion Shiba Inu tokens in circulation right now, and at a current price of $0.000022 per token, they have a total market value of $13 billion. At $1 per token, that valuation would be $589 trillion — that’s more than all of the recorded wealth across the world, which currently stands at $431 trillion. In other words, this meme token’s chances of soaring to $1 are basically nil, given the existing level of supply.
As it stands, what might a reasonable amount of upside for Shiba Inu be? Investors could target the token’s all-time high of $0.000089, which would represent a gain of 304%. That pales in comparison to the multi-million-percentage return of 2021, but it would still be a great result. However, it’s worth noting there are plenty of revenue-generating stocks that could do even better.
The reason to buy: The metaverse
The metaverse describes a virtual world where people exist as digital avatars of themselves, participating in work and social activities just as they would in real life. It promises to be an investment opportunity that could rival the early days of the internet, with one estimate suggesting an industry value of $1.6 trillion by 2030.
Earlier in 2022, the developers of Shiba Inu announced the Shiberse, a metaverse designed as a central meeting place for the Shiba Inu community, tokens, and games. There is speculation it could include virtual land and various non-fungible tokens (NFTs), which would create value for the Shiba Inu token as it would be used to facilitate transactions.
If the Shiberse takes off, it could drive adoption for Shiba Inu tokens, which have struggled to gain traction among businesses and consumers so far. Only 645 mostly obscure merchants accept Shiba Inu right now, so creating this new use case in the metaverse could benefit investors.
But it’s still a long shot, and the road ahead is paved with uncertainty. Investors who want to make a bet on Shiba Inu best do so as part of a diverse portfolio of traditional assets like stocks.
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.