Every dog has its day. That's especially applicable for a certain digital coin named after a Japanese hunting dog. Shiba Inu (SHIB 0.61%) has skyrocketed nearly 70,000,000% so far this year. It's vaulted out of nowhere be become one of the most popular cryptocurrencies on the market.
However, Shiba Inu has definitely lost some of its bite. It has fallen 28% from the recent high set in late October. Should you buy the cryptocurrency after its steep pullback?
Behind the decline
It's important to first understand why Shiba Inu's price has dropped significantly. At first, the decline seemed to merely be typical volatility. After rising as much as the cryptocurrency has this year, a modest retreat should be expected.
However, on Thursday what started out as a run-of-the-mill pullback turned into a crash. Shiba Inu plunged more than 20% during intraday trading. And you can blame it on a mysterious billionaire.
Last August, an anonymous person bought a whopping 70 trillion Shiba Inu coins for $8,000. Those coins were worth close to $6 billion at the cryptocurrency's peak. But this newly minted billionaire began moving a large portion of those coins -- more than 40 trillion of them -- to four different addresses last week.
The temptation to take some profits off the table after that massive return is undoubtedly great. With the recent transactions made by the unknown Shiba Inu billionaire, there are concerns that a large volume of coins is about to flood the market. If this happens, it would inevitably cause an even bigger crash.
Things to consider
There are several things to consider before buying Shiba Inu in light of its recent sell-off. Most importantly, understand that the value of your holding if you buy will in large part lie in the hands of someone you don't know. One decision by the mysterious billionaire could result in you losing a lot of money.
But it's not just this one person who holds the power to hurt you financially. Other Shiba Inu traders' fears about what might happen could lead to widespread selling even if the anonymous billionaire does nothing.
You should also look at the history of other cryptocurrencies. Several of them, including Nano and Litecoin, have plunged more than 90% after hitting all-time highs. Is there any reason why Shiba Inu couldn't follow in their footsteps? Not really.
The fact is that any cryptocurrency is prone to steep sell-offs. None of them has an intrinsic value like stocks do. Shiba Inu -- or fill in the blank with another crypto -- is only worth as much as investors and traders are willing to pay at a given moment in time.
Could Shiba Inu rebound and go to the moon? Perhaps. The digital coin plunged even harder in May than it has already. It began a comeback in October, though, that regained all of the loss and then some. And Shiba Inu bounced back somewhat on Friday from its sell-off last week.
If you decide not to buy now, you could very well forfeit huge gains. Of course, you could just as easily take a massive loss if you buy. Investing in cryptocurrencies isn't for the faint of heart. You can bold, highlight, and underline that statement for cryptocurrencies such as Shiba Inu that have little real-world utility.
Whether or not to buy Shiba Inu is a decision that investors must make on their own. There's an old Latin phrase, though, that you'll definitely want to keep in mind -- caveat emptor. It means "buyer beware." With the uncertainty surrounding Shiba Inu, every potential buyer should beware of the increased risk.