What happened

Popular meme token Shiba Inu (SHIB -7.38%) continues to provide cryptocurrency investors with an exhilarating ride. Still up approximately 45,000,000% this year, Shiba Inu has lost more than half of its value since hitting its recent peak in late October. As of 11:30 a.m. ET today, it had sunk another 6.9% over the past 24 hours.

This move coincided with three key headwinds that investors appear to be pricing in today.

From a broader market perspective, futures-related liquidations rose for Bitcoin and other large-cap tokens. This reduction in leverage in the crypto market appears to be a result of a sharp near-term drop in spot prices.

Today, risk-off sentiment appears to be taking hold in the stock and crypto markets as well, with investors looking to de-risk portfolios. Various growth-related indexes and risk assets are selling off today, in favor of more-defensive names. Today's losses for meme tokens such as Shiba Inu have continued to outpace market leaders such as Bitcoin and Ethereum.

Additionally, it appears various incoming tax-reporting regulations could be inciting some profit taking before year-end. Investors who were fortunate enough to capture some portion of the 45,000,000% gain Shiba Inu has posted this year may simply be looking to take some risk off the table heading into 2022.

Shiba Inu dog jumping on a beach.

Image source: Getty Images.

So what

As perhaps the most popular token in the world currently, Shiba Inu remains a trending ticker many investors (crypto or otherwise) are following. Predicting which direction this token will move has proved to be very difficult, with momentum-driven spikes and subsequent sell-offs making this token a trader's best friend, and perhaps a much-less-friendly investment for a longer-term investor. 

Broader market forces, sentiment-driven moves, and profit taking among bulls are three factors that are really outside the control of individual investors. That said, the rise of this token this year can be directly attributable to the mentality of the crowd. Should euphoria set in again, anything's possible for Shiba Inu.

Now what

Whether it's euphoria or fear driving the market, it's clear that Shiba Inu is likely to remain among the most volatile tokens this coming year. Given how far and how fast it has run in 2021, the downside risk with this token remains amplified. Investors looking to grab some Shiba Inu in the hope of catching a momentum-driven move to the upside ought to be concerned about similar downside moves. This is a high-risk, high-upside investment that has mostly been on the upside this year.

As we enter 2022, investors seem to be rethinking their capital allocation. Whether it's profit taking, or simply taking a more defensive stance, it appears aggressive investors are taking their foot off the gas. That's not been a good thing for this meme token of late.