Today we'll be closing the door on 2021, and on some very strong gains in the stock market. But they don't hold a candle to the fireworks we've seen in cryptocurrencies this year.
It was a latecomer, garnering most of its attention in October, but Shiba Inu (SHIB -3.66%) has generated a year-to-date gain of 43,500,000% as 2021 ends. It's an eye-popping result for investors who have held on since Jan. 1. For every $3 they invested on that date, they'd have $1.3 million today.
As staggering as it sounds, Shiba Inu was up by more than double that in October when it hit its all-time high of $0.000089 per token. It has since plunged by more than 60% to $0.000034, leaving many later investors underwater on their holdings.
For those investors looking for a repeat of Shiba Inu's previous astronomical gains, history presents some bad news: The token might actually fall further from here instead.
Image source: Getty Images.
Rising complexity and declining sentiment
Since November, things have been negative for most cryptocurrencies as a plethora of issues have damped sentiment. Even the market leaders have suffered, with Bitcoin, the largest cryptocurrency in the world by market value, falling more than 30% from its high, and No. 2 Ethereum down about 23%.
Part of the reason might be profit taking, as investors seek to book large gains before the end of year. But more concerning are the growing regulatory burdens imposed by governments around the world, including the U.S., which recently decided that starting in 2023, cryptocurrency brokers will need to record client transactions for tax purposes. It strikes a potential blow to investors, who might now be liable for taxes if they sell, exchange, or even spend their cryptocurrencies.
Still, that's a light touch compared to China, which recently made all cryptocurrency transactions illegal and banned the mining of new coins.
But as with many asset classes throughout history, negativity tends to cascade from the top down, with assets of the highest quality falling the least while those of lower quality fall much more. That's probably why Shiba Inu is down twice as much (in percentage terms) as Bitcoin, for example.
Every dog has its day
Although Shiba Inu is the undisputed meme-token king right now, it was handed the torch by the strikingly similar Dogecoin (DOGE -4.68%), which also uses an image of the Shiba Inu breed of dog in its logo. Dogecoin's rise to glory wasn't as spectacular as Shiba Inu's, with a gain of just 3,600% in 2021. But on the downside, it offers a stark lesson -- the token has fallen 77% since hitting its all-time high eight months ago.
The downward path has been relentless. At no point has Dogecoin realistically looked like it was poised to reclaim its lofty levels, despite the best efforts of social-media promoters and the announcement by Tesla Chief Executive Officer Elon Musk that his company would begin accepting the token for some merchandise sales.
And that brings us to perhaps the largest issue. Tokens such as Shiba Inu and Dogecoin suffer from a lack of adoption. Very few businesses accept them as payment, and therefore consumers have no reason to buy or hold the tokens except in the speculative hope that someone will eventually pay more for them. That's not exactly a recipe for staying power.
A mere 395 merchants accept Shiba Inu as payment globally. That's even less than Dogecoin, which has the support of 1,982 businesses -- meaning both coins have negligible use as currency. And it shouldn't come as a surprise, because any payment mechanism that can fluctuate violently on a given day makes it nearly impossible to manage cash flow or predict revenue.
That's why even though Shiba Inu is down more than 60% right now, it's more likely to follow Dogecoin's path and fall even more rather than make a comeback that approaches its record highs. History is clear, but whether investors heed the lesson is another story.
