The mysterious Ryoshi introduced Shiba Inu (SHIB -3.88%) in August 2020. As the mascot implies, this canine-themed cryptocurrency was design to rival Dogecoin, and so far it's made incredible progress. Over the past year, Shiba Inu has skyrocketed 70,500,000% in value, a pace that would have made you a billionaire if you'd invested $1,200 last November.

Not surprisingly, this cryptocurrency is generating quite a bit of buzz, and many investors are probably asking themselves the same question: Is Shiba Inu a smart buy right now? Let's dive in.

Image source: Getty Images.

The bull case

People often use the terms coin and token interchangeably when discussing cryptocurrency, but they actually refer to different things. In general, cryptocurrencies are powered by blockchain technology, the decentralized database that tracks transactions, account balances, supply limits, and more. Cryptocurrencies that exist on their own blockchains are called coins, while those that use pre-existing blockchain infrastructure are called tokens. Shiba Inu falls into the latter category.

Specifically, it's an ERC-20 token, a type of smart contract that exists on the Ethereum blockchain. In fact, it recently became the fifth-most-called contract on the network, showing its soaring popularity. And because Shiba Inu is built on the Ethereum blockchain, it's compatible with a robust ecosystem of decentralized finance (DeFi) services. That means it could potentially be incorporated into interest-bearing products that allow consumers to save or lend tokens.

The bear case

Despite that potential, Shiba Inu's functionality remains quite limited. It has not been widely integrated into DeFi services, and unlike Bitcoin or Ethereum, it's not a widely accepted form of payment. Of course, those things could change -- but right now Shiba Inu has very few (if any) compelling use cases. From that perspective, it's hard to justify its $30 billion market value.

There's also another problem. The average investor holds Shiba Inu for just 11 days, according to Coinbase. That troubling statistic implies that most people view it as a lottery ticket, not an asset that will appreciate in value over the long term. And it's hard to argue with that. Shiba Inu is far from the only ERC-20 token, and many of its rivals have far more utility.

For instance, Chainlink is a decentralized oracle network that provides real-world data (i.e. off-chain data) to smart contracts on any blockchain. That has numerous potential applications, but here is one example: Real estate can be tokenized through smart contracts, but property value depends on real-world variables. To keep the smart contract up to date, Chainlink can feed the valuation data to the blockchain, making it possible to transact real estate as a digital asset.

Better places to put your money

So is Shiba Inu a smart buy? I don't think so. Its extraordinary gains have been fueled by hype, and buying in at this point is essentially gambling. The price could certainly go higher, but it could also crash into nothingness. And unless the token achieves greater utility -- such as being incorporated into more DeFi services, or becoming a widely accepted form of payment -- I think the bubble will burst eventually.

So for the time being, there are better cryptocurrencies to buy.