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Shiba Inu became the darling of the cryptocurrency industry in 2021 when it generated a gain of 43,800,000%, which could’ve made millionaires out of investors for an outlay of just $3, assuming their timing was perfect.
But risk appetite evaporated from the financial markets in 2022, which sent speculative assets like Shiba Inu plunging, and the token remains 89% below its all-time high. Certain realities about its lack of mainstream adoption are also setting in, which is hindering any recovery attempts.
But sentiment surrounding the broader crypto industry has improved in 2023, so could Shiba Inu stage another historic run? There might actually be a way the token could soar to $1, but it won’t have the effect most investors think it will. Here are the details.
Image source: Getty Images.
Last year was one to forget for cryptocurrency investors. A series of high-profile collapses across the industry reached a crescendo in November when global brokerage firm FTX fell into bankruptcy owing customers an estimated $3 billion. Regulators are still attempting to track down missing funds, and the saga has caused many investors to shun the crypto industry.
According to a survey conducted by business news network CNBC at the end of last year, just 8% of Americans have a positive view on cryptocurrencies.
That environment is less than ideal for speculative tokens like Shiba Inu, which are seldom used in the real world for transactions. That’s one of the reasons it’s struggling to climb back toward its all-time highs — just 746 businesses worldwide accept the token as payment for goods and services, which means consumers have little reason to own it. Without adoption, sustaining value over the long term is an uphill battle.
The Shiba Inu community is trying to create new use cases for the token, including with a metaverse (virtual world), and a Layer-2 blockchain solution called Shibarium, which is designed to reduce the cost and friction when transacting. But so far, nothing has really moved the needle.
Shiba Inu has a supply issue. There are 589.3 trillion tokens in circulation, which is why its current price of $0.00001 features so many decimal places. The math is simple: If Shiba Inu rose to $1, it would have a total market capitalization of $589.3 trillion, making it the most valuable asset in the world by a wide margin.
For a little perspective, Apple is currently the largest company on the planet and it’s worth $2.6 trillion as of this writing.
That’s why the Shiba Inu community has been working to reduce that enormous supply figure by burning tokens, which removes them from circulation forever. Investors can participate by sending their tokens to a dead wallet, or by using services that commit a portion of their profits to the cause. They include streaming a certain music playlist and YouTube channel, using the Shiba Search internet search engine, and buying coffee from the Shiba Coffee company.
Theoretically, as tokens are burned, Shiba Inu’s price will increase in equal proportion. For Shiba Inu to rise to $1 from here purely through the burn mechanism, the community would have to eliminate 99.9998% of the tokens currently in circulation, bringing the total down from 589.3 trillion to just 6 billion.
Here’s the first problem: The community burned just 3.3 billion tokens in the past month. That’s a burn rate of 39.6 billion per year, meaning it would take a whopping 14,881 years to burn supply down to 6 billion.
But here’s the second, and much bigger problem. In the end, there would simply be 6 billion tokens in supply trading at $1 per token, placing Shiba Inu’s market capitalization at $6 billion — exactly where it is today. No investor would see an actual increase in the value of their holdings. Therefore, even if humans found a way to live for thousands of years, it would be an exercise in futility.
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
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