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The cryptocurrency industry is on the rebound this year after a miserable 2022. It’s being led by the largest token, Bitcoin (BTC 0.90%), which has generated a year-to-date gain of 83%. Crypto-focused companies are also experiencing a lift, with the share price of Coinbase more than tripling so far in 2023.
But the smaller, more speculative end of the market is being left behind. Shiba Inu (SHIB -2.07%) generated arguably the greatest return in financial-market history in 2021 with a gain of 43,800,000%, but it plunged 76% in 2022, and it’s trading down 1% this year.
The Shiba Inu community is hopeful for a return to glory, and it’s working on a series of initiatives to help jump-start the token’s price. It currently trades at $0.000008, so could it deliver yet another historic gain and surge to $1? It will have to solve a major mathematical problem if it has any chance at all, and here’s why.
Cryptocurrencies have generally struggled to fulfill their promise to become a truly decentralized alternative to traditional money. The idea behind the technology is that tokens such as Bitcoin can’t be printed by a central government, so long-term supply is always fixed and can’t be subjected to devaluation. But in reality, the sheer volatility of most crypto tokens has rendered them useless as a day-to-day means of exchange.
Above, I mentioned the enormous gain Shiba Inu experienced in 2021. It would have been enough to turn a perfectly timed investment of just $3 into more than $1 million! But it has shed almost all of that value in the two years since, and as a result, it’s not surprising that a mere 761 businesses around the world are willing to accept the token as payment for goods and services. That level of volatility would make cash flow management next to impossible.
Shiba Inu developers will soon introduce a Layer-2 blockchain solution called Shibarium, which will make transacting in the token much cheaper with less friction. Whether that will help is rather questionable. But the community is working on a series of other initiatives, including a Shiba Inu-focused metaverse and a digital card game called Shiba Eternity, both of which are designed to draw more users into the ecosystem.
None of the above have really excited investors enough to lift the token’s price off its currently beaten-down level. But even if the community can generate enough enthusiasm, it will still have to contend with a mathematical hurdle which stands in the way of another historic run.
Image source: Getty Images.
The reason Shiba Inu’s price trades behind so many decimal places is because of its flood of supply. There are currently 589.3 trillion tokens in circulation, so at today’s price of $0.000008, the cumulative value of them (referred to as market capitalization) is $4.7 billion. Mathematically speaking, if the price per Shiba Inu token rose to $1, it would have a market cap of $589.3 trillion!
That would make Shiba Inu the most valuable asset in the world by a wide margin. The largest company on Earth right now is Apple, and it’s only valued at $3 trillion. In fact, the combined market cap of every company in the S&P 500 stock market index is just $37 trillion!
Therefore, it’s impossible for Shiba Inu to rise to $1 in its current state. As a result, the community has been working to reduce supply by burning tokens (permanently removing them from supply), which can be done by sending them to a dead wallet. Some members have set up a music playlist, a search engine, and even a coffee retailer, all of which use the proceeds from sales and advertising to burn Shiba Inu tokens.
Theoretically, if enough tokens are burned, Shiba Inu would rise to $1 organically. Using today’s market cap of $4.7 billion, the community would have to burn 99.99998% of all tokens in existence to leave just 4.7 billion remaining in order to justify a price of $1. But here’s the rub: Even if they accomplished this, it wouldn’t change the underlying value of any investor’s holding — they’d simply own fewer tokens worth more money per token, but their underlying position would be exactly the same.
Plus, as of this writing, the community has only burned 1.2 million tokens in the last 24 hours. If that rate remained constant going forward, it would take a whopping 1.3 million years to burn the 589.29 trillion tokens required to accomplish the goal.
Based on all of the above information, I’m confident Shiba Inu has practically no chance of reaching $1 at any point in the future — well, at least not within the lifetime of anybody reading this.
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bitcoin, and Coinbase Global. The Motley Fool has a disclosure policy.
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