Since the beginning of the 20th century, the stock market has been a money machine. Even though the stock market doesn’t outperform other asset classes, such as bonds, housing, or gold, every year, it’s average annual return over the very long-term has handily outpaced other investment vehicles.
But over the past two years, the stock market has been eating the dust of the high-flying cryptocurrency space. Since the pandemic lows of March 2020, the aggregate value of all digital currencies has soared more than 1,400%. That compares to a slightly better than 100% gain for the benchmark S&P 500.
Although the most prominent crypto names, such as Bitcoin and Ethereum ( ETH 0.79% ), garner a lot of credit for the $2 trillion in crypto market value created over the past two years, it’s lesser-known coins like Shiba Inu ( SHIB 3.71% ) that are really driving interest in the digital currency space.
Shiba Inu delivered life-altering gains in 2021
In a typical year, the best-performing stock might rally 2,000% or perhaps a bit more. What Shiba Inu did in 2021 was truly historic and may not be replicated again.
When midnight struck on Jan. 1, 2021, investors had the opportunity to buy SHIB at a microscopic $0.000000000073 per token. Less than 10 months later, on Oct. 27, investors would see these same tokens exchange hands at an all-time high of $0.00008841. It might be difficult to tell with all of these zeroes, but this represented a year-to-date gain of more than 121,000,000%! Put another way, a perfectly timed investment of $1 at midnight on Jan. 1, 2021 would have made someone a millionaire by Oct. 27. Ultimately, Shiba Inu finished 2021 higher by roughly 46,000,000%.
How did these practically unimaginable gains become a reality? For starters, crypto market dynamics really helped. While it’s relatively easy for skeptics to bet against a publicly traded stock via short-selling or a derivative (e.g., buying a put option contract), it’s a lot tougher to bet against cryptocurrencies not named Bitcoin. There are no derivative options for Shiba Inu, and not all crypto exchanges allow short-selling because of its inherent risks. This resulted in a clear buy bias for SHIB in 2021.
Increased visibility has been a boon as well. Shiba Inu was listed by numerous new exchanges last year, and it benefited from the launch of decentralized exchange ShibaSwap in July 2021. ShibaSwap improved liquidity and introduced staking, which allows SHIB holders to earn passive income. Most importantly, staking appears to have encouraged SHIB holders to stick around. Since mid-October, the median hold time of Shiba Inu tokens on crypto exchange Coinbase Global has skyrocketed from just six days to 105 days, as of March 30.
Here’s why optimists are eyeing a $0.0001 target for SHIB by July
Despite these enormous gains in 2021, Shiba Inu bulls are fully expecting an encore performance this year. Though a 46,000,000% gain is out of the question, optimists continue to believe SHIB can “eat up zeroes” over time.
In particular, there’s one major event expected to give Shiba Inu a chance at hitting $0.0001 — a nearly 300% move higher from its current price — by July: the expected public rollout of layer-2 blockchain project Shibarium.
As it stands now, Shiba Inu is an ERC-20 token built on the Ethereum blockchain. While Ethereum is a trusted network that’s seen its usage increase significantly over the past five years, its popularity can also be a crutch. Congestion on Ethereum’s blockchain can lead to slow processing times and transaction fees that are considerably higher than other payment coins. With Shiba Inu tethered to the Ethereum network, it’s effectively constrained by these high transaction fees and occasional processing lags.
Shibarium is an in-house layer-2 blockchain project that’s specifically designed to lower or completely eliminate the transaction fees that have held back or discouraged the use of SHIB tokens. Shibarium is already being tested privately, with the unofficial expectation that it’ll be ready for a public launch in the first-half of 2022 — ergo, why Shiba Inu could make a run at $0.0001 by July.
Keep in mind that Shibarium is about far more than just lowering transaction fees to encourage more merchants to accept it as a form of payment. Low transaction fees are necessary before the Shiba Inu development team can move forward with their next stage of ecosystem evolution: non-fungible token (NFT)-based gaming. An NFT marketplace won’t be viable if transaction costs are prohibitively high.
Shiba Inu bulls are hoping the public launch of Shibarium, along with social media buzz, will be enough to send SHIB to another milestone.
Is hitting $0.0001 by July feasible for Shiba Inu?
But there’s a big difference between hoping Shiba Inu hits $0.0001 and actually having it happen. From a feasibility standpoint, there are plenty of reasons to believe SHIB won’t come anywhere close to this price by the midpoint of the year, or anytime soon.
One of the more glaring issues is Shiba Inu’s circulating coin supply. Even with Ethereum founder Vitalik Buterin sending more than 410 trillion SHIB tokens to a dead blockchain address and effectively burning these coins, there are still in the neighborhood of 549 trillion SHIB tokens in circulation. A $0.0001 price tag would give Shiba Inu a completely unjustified market cap of nearly $55 billion.
What do I mean by unjustified? Let’s begin with Shiba Inu’s existing utility (or lack thereof). Online business directory Cryptwerk notes that only 648 global merchants accept SHIB as a form of payment. Though this is up substantially from six months ago, it’s a minute figure considering there are over 32 million businesses in the U.S. alone and north of 500 million entrepreneurs worldwide.
Even more worrisome than Shiba Inu as a rarely used payment coin is that it lacks competitive advantages and true differentiation. Despite its popularity on social media, Shiba Inu is nothing more than a payment coin. There’s nothing special about its transaction fees or processing time, which means it’s going to be incredibly difficult for this project to stand out over a long period.
As I’ve previously pointed out, history also doesn’t take kindly to payment coins that generate life-altering gains in a short time frame. For example, privacy coin Verge — a privacy coin obfuscates the sender and receiver of a payment — skyrocketed nearly 1,200,000% in 12 months. It then went on to lose 99.6% of its value over the subsequent two years. Big gains from payment coins almost always result in 93% to 99% reversions following their respective peaks. With Shiba Inu gaining more than 121,000,000% in under 10 months, the likelihood of a massive retracement is exceptionally high.
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.