Soaring a jaw-dropping 60,00,000% by its peak in late October, Shiba Inu (SHIB -7.91%) was one of the top-performing assets in 2021. But now it is crashing, and the pain looks likely to continue in the new year. Let's explore two big reasons investors should sell this dog of a cryptocurrency in 2022.
1. The greater-fool assumption is broken
Shiba Inu's big rally started in early October after Tesla CEO Elon Musk tweeted a picture of his Shiba Inu puppy, named Floki. After the initial spike, the coin continued to soar based on the greater-fool theory, which suggests investors can profit from buying a low-quality asset if they expect to sell it to someone else (the greater fool) at a higher price in the future.
Image source: Getty Images.
Now that Shiba Inu's valuation is falling (with a market cap of $16 billion, it is down 59% from its all-time high of $39 billion), the greater-fool assumption is broken -- meaning a key demand driver has vanished. Unfortunately, the token's fundamentals can't make up for the lost hype.
As a token programmed on the Ethereum blockchain, Shiba Inu shares the technical limitations of its parent network. These problems include a low transaction capacity of 15 per second compared to newer blockchains like Solana, which can handle 50,000 transactions per second. Shiba Inu also doesn't benefit from the trust and first-mover advantages of major coins like Bitcoin, and its extreme volatility makes it a poor store of value.
2. Ownership is alarmingly centralized
As Shiba Inu's valuation collapses, its investors' time horizons seem to be changing. According to data from Coinbase Global, the token's average holding time on the platform has surged to 61 days, up from just 10 days in November. This can be seen as a positive trend because established coins tend to have longer holding times (for example, Bitcoin averages 81 days). Lower investor churn could also reduce volatility, making an asset a better store of value.
But unlike mature cryptocurrencies, Shiba Inu's ownership is alarmingly centralized. According to data from coinmarketcap.com, the top 100 Shiba Inu wallets own a staggering 81% of the coins in circulation, giving them massive control over the price and the ability to conduct a rug pull (the cryptocurrency equivalent of a pump-and-dump scheme) by selling a large number of coins in a short period. For comparison, the top 100 Bitcoin wallets control only 14% of the coins in circulation.
Shiba Inu's collapse is likely to continue
While it is impossible to predict the future, Shiba Inu's weak fundamentals and concentrated ownership make it a high-risk asset. And the token's valuation is likely to continue collapsing in 2022. Cryptocurrency investors should avoid this disgraced meme coin until these issues are resolved.
