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The total value of all cryptocurrency tokens in existence, as tracked by CoinGecko, currently stands at $1 trillion. That’s down 66% from the all-time-high figure of $3 trillion, which was achieved during the speculative frenzy of 2021. But some tokens have plunged even more steeply, and Shiba Inu (SHIB -2.93%) is one of them.
The token delivered one of the most lucrative one-year returns in history in 2021 when it soared by 43,800,000%. In other words, a perfectly timed investment of just $3 would have made you a millionaire. But the current picture looks very different, because Shiba Inu has steadily lost 91% of its value at that all-time high.
But could another spectacular run be in the cards? Believe it or not, there’s a mathematical possibility Shiba Inu could surge from its current price of $0.000007 all the way to $1. However, it won’t necessarily translate to life-changing fortunes. Let me explain.
First, we need to explore the reasons why Shiba Inu has lost so much of its value over the last two years. Cryptocurrency in general has struggled to fulfill its promise to become a decentralized replacement for traditional money. Even the largest token, Bitcoin, is accepted as payment by only 8,120 businesses worldwide — and just 770 are willing to accept Shiba Inu.
Volatility is one reason businesses haven’t adopted crypto; any means of payment that can fluctuate in value by millions of percentage points, before losing nearly all of its value, would make cash flow management next to impossible. Here’s the bottom line: If consumers can’t spend their tokens on everyday goods and services, then there isn’t much reason to buy and hold them, other than on a bet that they will rise in value.
The risk of catastrophic financial losses is another reason investors haven shunned cryptocurrencies lately. 2022 was marred by spectacular failures across the industry, and the drama reached a peak in November with the collapse of top crypto exchange FTX. There is still approximately $3 billion in customer money missing, with little hope of recovering it.
Sure, some crypto enthusiasts will argue banks in the traditional financial system also fail sometimes, and this year has certainly supported that point with the collapse of Silicon Valley Bank. But no customer suffered a financial loss because deposits up to $250,000 were automatically insured by the Federal Deposit Insurance Corporation (FDIC) and the U.S. government stepped in to protect the holders of larger deposits, most of which were businesses.
These safety nets are absent in the decentralized world of cryptocurrency, and the last two years are a reminder that living within the confines of a regulated financial system does come with benefits. Therefore, it isn’t surprising that investors have steered clear of speculative tokens like Shiba Inu, but that doesn’t mean its price won’t rise from here.
There are currently 589.3 trillion Shiba Inu tokens in supply, and at a price of $0.000007 each, the ecosystem has a market capitalization of $4.6 billion. The math suggests that if the price of a Shiba Inu token rose to $1, the ecosystem would have a market capitalization of $589.3 trillion. That would be equal to:
As you’ve probably figured out, it’s absolutely, unequivocally impossible for Shiba Inu to reach $1 in its current state.
Image source: Getty Images.
The Shiba Inu community has taken notice of its supply problem, and it’s working to fix it by “burning” tokens — removing them from circulation forever. Investors can participate by sending some of their tokens to a dead wallet, whence they can never be recovered. Enthusiasts can also help out by streaming a specific music playlist, or by using the Shiba Search internet search engine. Some of the proceeds generated from both activities are used to burn Shiba Inu tokens.
Theoretically, when supply shrinks, the price of Shiba Inu tokens will rise organically. Here’s the rub: The community will need to burn 99.99998% of all tokens in supply for Shiba Inu to reach $1 through that mechanism. That means eliminating over 589.2 trillion tokens.
On Sept. 2, the day I wrote this piece, 116 million tokens were burned. If that pace remains constant, roughly 42 billion tokens will be burned this year. That means it will take over 13,900 years to burn enough tokens to send Shiba Inu to $1!
It gets worse. Even if the community burns the necessary 589.2 trillion tokens to send Shiba Inu to $1, the ecosystem’s market capitalization will still be $4.6 billion. The exercise won’t have increased the token’s value, which means no investors will have actually made money.
That’s because each investor will need to also burn 99.99998% of their own tokens to achieve the common goal, so in the end, they’ll simply have fewer tokens worth a higher price per token — with no actual change in the value of their holdings.
So, while it is technically possible for Shiba Inu to reach $1 at some point way, way, way in the future, it won’t necessarily translate into a financial gain!
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Bitcoin. The Motley Fool has a disclosure policy.
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