Despite last week's stock market swoon, it's been an excellent time to be invested in equities. In the 20 months since the coronavirus bear market bottomed out, the benchmark S&P 500 has slightly more than doubled. This represents the strongest bounce from a bear market trough in the market's storied history.

But the gains have been even more pronounced in the cryptocurrency space. Even taking into account the shellacking digital currencies absorbed this past Friday, Nov. 26, the aggregate value of all cryptocurrencies has skyrocketed from $141 billion to $2.45 trillion in 20 months. That's about a 17-fold increase.

A Shiba Inu-breed dog sitting on grass and looking skyward.

Shiba Inu-themed coins have surged higher this year. Image source: Getty Images.

Shiba Inu made investors millionaires from mere pocket change

Although it's not the biggest nominal contributor to this $2.3 trillion increase, meme coin Shiba Inu (CRYPTO:SHIB) has captivated the crypto space with jaw-dropping gains in 2021.

According to data from CoinMarketCap.com, SHIB tokens began the year at $0.000000000073. But on Oct. 27, Shiba Inu coin hit an all-time high of $0.00008841. For you math-phobes out there, this works out to a gain of more than 121,000,000% in less than 10 months. To put this into perspective, the S&P 500 has gained close to 30,000%, including dividends paid, since the start of 1965. If a crypto investor put $0.83 into SHIB at midnight on Jan. 1, 2021 and sold at the peak, they would have become a millionaire.

A number of perceived catalysts have worked in tandem to push Shiba Inu to historic gains. In no specific order:

  • A growing number of crypto exchanges have listed SHIB for trading, which is improving liquidity and growing a community that just hit 1 million unique wallet addresses.
  • The July launch of decentralized exchange ShibaSwap has further helped liquidity and allows hodlers to stake their coins. This is important for lengthening the typical hold time.
  • Ethereum (CRYPTO:ETH) co-founder Vitalik Buterin, who was gifted roughly half of Shiba Inu's 1 quadrillion token supply, burned approximately 410 trillion SHIB by sending them to a dead blockchain address. This makes each remaining token scarcer and more valuable.
  • Minimal pathways exist to short-sell Shiba Inu coin, creating something of a buy bias.
  • Shiba Inu recently landed its first major merchant, movie theater chain AMC Entertainment (NYSE:AMC).
  • Tweets from Tesla CEO Elon Musk pertaining to his recently adopted Shiba Inu-breed dog, or generalized Shiba Inu memes, have caused investors to stampede into SHIB.
  • The fear of missing out (FOMO) is encouraging hodlers to believe in massive upside, even after a jaw-dropping gain.
A one hundred dollar bill on fire atop a lit stove burner.

Image source: Getty Images.

Shiba Inu's hodlers are probably going to lose a lot of money

While there's no denying that SHIB's gains are beyond impressive, I'd opine that Shiba Inu is the most dangerous "investment" opportunity in the crypto space right now. Let me clarify that I don't mean "dangerous" in a good way. If you own SHIB tokens, I fully expect you'll lose a significant portion of your investment over the long run.

Below are five reasons Shiba Inu is crypto's most dangerous investment.

1. It lacks real-world utility

To be fair and upfront, the vast majority of cryptocurrencies have no real-world use case. But when it comes to Shiba Inu, its lack of real-world involvement is particularly low. Even though it's the 12th-largest digital currency by market value, only 365 merchants worldwide are accepting it as payment. To put this figure into some context, only around 0.00007% of all global businesses take SHIB as payment.

And before you claim AMC as a big win for the movement, consider this: Using SHIB tokens to buy gift cards, movie tickets, or concessions would be a taxable event that would need to be reported to the IRS. It might be neat that AMC will begin accepting SHIB in the first quarter of 2022, but let's be honest, virtually no one will be using SHIB to make purchases at AMC.

A person typing on a laptop, with the display screen showing encrypted blockchain with binary code.

Image source: Getty Images.

2. There's no competitive edge

To build on the previous point, there's nothing Shiba Inu offers that represents a competitive edge. It's an ERC-20 token built on the Ethereum blockchain, which means it deals with the same high transaction fees and occasional processing lag times that accompany the highly popular Ethereum network. There is no shortage of popular payment coins with lower transaction fees and faster processing times.

Making matters worse, new blockchain projects are constantly being introduced. Over the past month, approximately 1,900 new cryptocurrencies have been listed by CoinMarketCap.com. Though many of these projects will be unsuccessful, some will easily out-innovate what Shiba Inu brings to the table.

3. Elon Musk has nothing to do with SHIB

Rallying anytime the world's richest person tweets about his dog or a Shiba Inu-themed meme is another reason SHIB is the unquestioned most dangerous cryptocurrency. Nothing Musk is tweeting about has anything to do with the Shiba Inu project.

Furthermore, Musk lifted the hood on his crypto portfolio, and SHIB isn't a holding. However, Dogecoin, the Shiba Inu-inspired chief rival to Shiba Inu, is one of Musk's holdings. Musk has previously tweeted that he'd be working with Dogecoin's developers to improve the network.

A visibly concerned person looking at a rapidly rising then plunging crypto chart on a tablet.

Image source: Getty Images.

4. History isn't on its side

History also irrefutably shows that mammoth gains in the crypto space are met with massive reversions.

Recently, I examined the performance of a handful of payment coins that gained anywhere between 24,000% and roughly 461,000% in relatively short time frames (10 months to 30 months). After these cryptocurrencies peaked, they all went on to lose between 93% and 99% of their value in the subsequent 12-month to 26-month period. Shiba Inu has already retraced as much as 59% from its Oct. 27 high, and history would suggest this is just the beginning of a drawn-out implosion.

5. Social media boards reek of unsubstantiated pumping

Finally, a quick look at social media boards, such as Reddit or Twitter, shows there to be countless posts encouraging a "pump" of SHIB. While I don't doubt there are investors who believe in the long-term prospects of Shiba Inu coin, the sheer number of posts I came across on Twitter that contain "SHIB" or "Shiba Inu" and the word "pump" were eyebrow-raising. It suggests that some combination of short-term/momentum traders and/or novice investors are blatantly attempting to influence Shiba Inu through social media.

Though the Securities and Exchange Commission (SEC) is tasked with protecting investors, the lack of regulatory oversight in the digital currency space means the SEC can't do a whole lot to protect investors from cryptocurrency scams and unsubstantiated online pumping.

Pumped assets rarely pay dividends for investors over the long run.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.