You can count the number of stocks that have delivered year-to-date gains of more than 1,000% in 2021 on one hand. The best performer among these high-flying stocks soared a little over 3,000% this year.
I mention this to put what Shiba Inu (SHIB -1.13%) has done in 2021 into context. So far this year, the digital token is up more than 64,000,000%.
There is no way that Shiba Inu will be able to repeat that performance in the new year, of course. If it did, that cryptocurrency would have a market cap of close to $13 trillion -- more than 60% of the U.S. gross domestic product in 2020. But could one key advantage still lead to Shiba Inu being a huge winner in 2022?
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The price is right
There are several factors that explain why the valuation of a cryptocurrency like Shiba Inu increases. Arguably the most important is that prices are determined by supply and demand.
In this case, there's more than enough supply -- there are 549 trillion Shiba Inu tokens in circulation already. Rising demand, therefore, was a major reason behind the digital token's jaw-dropping gains over the last year.
But why has demand been so strong? Some might point to the fact that Shiba Inu offers an Ethereum-based alternative to the already-popular Dogecoin. But there were plenty of other cryptocurrencies based on Ethereum to which Dogecoin fans could have turned.
I suspect there's another fundamental reason why it has performed so well -- its super-low price. An investor could have purchased a whopping 100 billion tokens for only $1 in early 2021.
A psychological advantage
You might think, "Sure, but there are lots of low-priced digital tokens on the market." That's true. However, even after its massive rise this year, Shiba Inu still has by far the lowest price per coin among the top 100 cryptocurrencies ranked by market cap.
Psychological advantages due to pricing can exist with any product. You've no doubt noticed that retail product prices commonly end in nines, so instead of $20 for a widget, it will be marketed at $19.99. The reason is that people tend to anchor on the leftmost digit (a one instead of two, in this case). Our natural desire for a better deal means we're more likely to buy a product priced at $19.99 than one priced at $20.
Another related psychological quirk that comes into play here also applies to penny stocks. Why do some investors find penny stocks so appealing? Because there is a tendency to look at them and assume there's less potential for downside because their prices are already so low. Or, looking at matters from the opposite angle, penny stocks' low prices may make people feel as if such investments have more upside potential. Those perspectives don't have to be rational or accurate for them to have a real influence on investor behavior.
With Shiba Inu, the leftmost digit that investors anchor on is a zero. Actually, quite a few of the leftmost digits are zeros. And I think that the same mindsets that lead some people to buy penny stocks are also attracting buyers to Shiba Inu.
Will it matter in 2022?
I'll admit that I could be totally off-base about the impact of Shiba Inu's psychological pricing advantage. But I don't think I am. So If I'm right, will this advantage matter in 2022? Could Shiba Inu's still-ultra-low token price improve its chances of being a big winner yet again?
Let me first say that my view is that there are several potential catalysts that could be much more critical to Shiba Inu's performance in the new year. I'd definitely put signs of increasing mainstream acceptance for the token -- such as AMC Entertainment starting to accept it or Robinhood making the cryptocurrency available on its trading platform -- high on the list.
I also believe that the overall level of demand for cryptocurrencies will be of paramount importance. Shiba Inu is extremely unlikely to soar if most cryptocurrencies sink.
However, I think that price matters. And Shiba Inu could very well have an enduring advantage on this front compared to many other popular digital coins. That doesn't mean it will be a huge winner in 2022. But it certainly doesn't hurt the cryptocurrency's chances.
