For all of the ups and downs associated with the pandemic and subsequent economic recovery in 2021, the year might well be remembered by investors for the parabolic growth in certain cryptocurrencies.
It kicked off with a Dogecoin (DOGE 0.67%) frenzy, soaring 15,644% to $0.74 per token before suffering a steep decline to $0.17, where it remains today. Despite the recent losses, Dogecoin's year-to-date gain still sits at 3,500%, crushing cryptocurrency leader Bitcoin (BTC +0.25%), which has gained just 67% in 2021.
But cryptocurrency investors certainly weren't done with meme-tokens. Somewhat late to the party, Shiba Inu (SHIB 1.72%) emerged as a crowd favorite in October with a meteoric rise far eclipsing even that of Dogecoin. Had you purchased Shiba Inu on Jan. 1 this year and held on, you would be sitting on a gain of 47,500,000% right now. In other words, a $3 investment would have returned $1.4 million.
Image source: Getty Images.
It's a once-in-a-lifetime return, but investors who climbed aboard the bandwagon more recently are having a much rougher experience. Shiba Inu has plummeted 58% from its all-time high, but could this be a buying opportunity?
Too much speculation, not enough adoption
A big part of Shiba Inu's problem is that too few businesses accept it as a currency. Just 388 merchants, mostly obscure, deem the token worthy of payment for goods and services globally. This lack of support is not surprising given the swings in Shiba Inu's price, as it would be incredibly hard for a business to manage cash flow and profitability when the token's value could drastically change day by day.
For that reason, the average consumer has no reason to buy or hold Shiba Inu except on the basis that someone will come along and pay more for their tokens later -- otherwise known as speculation. That's unfortunate for bullish investors, because widespread adoption is the key to sustained price increases.
Take Dogecoin, for example. It had the same struggles with merchant uptake, and that token has never recovered from its 77% price collapse. However, just last week, Tesla Motors (TSLA +2.45%) CEO Elon Musk announced the company would begin accepting Dogecoin as payment for select items of merchandise. The token rallied 20% almost instantly on the news before shedding the gains, highlighting that adoption really can boost sentiment.
But how many businesses and consumers would it take for Shiba Inu to reach $1?
The supply problem
Bitcoin is the world's leading cryptocurrency. There are 18.9 million Bitcoin tokens in circulation, so at the current price of $46,000, the total value of all Bitcoins is $870 billion. On several occasions, this total value has exceeded $1 trillion.
Here's where Shiba Inu runs into an interesting problem. There are currently 589 trillion Shiba Inu tokens in circulation, so at a current price of $0.00003, they have a total value of $17 billion.
But what if Shiba Inu were to rise to $1? Don't hold your breath waiting for that event.
The math is pretty simple -- multiplying $1 by 589 trillion tokens in supply means the total value would be an astronomical $589 trillion. For some perspective, all of the recorded wealth on Earth stands at about $431 trillion.
Imagine that every business and consumer on the planet adopted Shiba Inu while also converting all of their money and assets into Shiba Inu tokens. That all-in endorsement of Shiba Inu on a global scale would still only justify a price of $0.73 per token (to arrive at a $431 trillion total value). It feels crazy to even think about that as a possibility!
To put it quite simply, not only is it unlikely Shiba Inu ever reaches $1 per token, but by all reasonable accounts, it's impossible. As a result, investors holding on in the hope of such a game-changing return from here have unfortunately set themselves up for disappointment.
