Early investors in Shiba Inu (SHIB 3.29%) have reason to celebrate. This young cryptocurrency soared as much as 60,000,000% last year. Shiba Inu became an extremely popular meme token, supported by a loyal community known as the Shib Army.
Since then, the Shib Army has continued to rally behind Shiba Inu. But the crypto player still has lost 74% since its peak.
Thousands of cryptocurrencies have emerged in the past few years -- and competition is fierce. This makes things particularly difficult for cryptocurrencies such as Shiba Inu that don't stand out from the rest. In this environment, what should a Shiba Inu investor do?
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Three tokens
First, a little background. Shiba Inu is a cryptocurrency built on the Ethereum blockchain. It actually includes three tokens. Shib is used for trading and represents the actual market value of Shiba Inu. Leash is used for staking rewards. Bone is the governance token used for voting proposals.
Some cryptocurrencies -- such as Ethereum -- have a variety of uses. That's because they're blockchains with the ability to run decentralized applications (dApps). These dApps allow users to grant loans, buy insurance, or store important data. But Shiba Inu doesn't have these capabilities.
These days, users can trade Shiba Inu, gain passive income through staking, or use it as a payment method at some merchants. Compared to many rivals, Shiba Inu's uses are limited, and this could limit gains.
To make matters worse, Shiba Inu's circulating coin supply also puts a big limit on gains (unless a major coin burn happens in the future). For example, if Shiba Inu reached $1, its market cap would total $549 trillion. That's a bigger market value than a company like Apple, so it's very unlikely this will happen.
A catalyst ahead
But there is a catalyst ahead for Shiba Inu. The cryptocurrency is working on a scaling solution called Shibarium. So far, there aren't many details available. But here's what we know.
Shibarium will be a layer-2 solution or blockchain running on top of Ethereum. The goal is to cut transactions fees and network congestion. These have been problems on the Ethereum blockchain.
The Shibarium launch could come as soon as this year. And it may be an element that would push the value of Shiba Inu higher. Still, it doesn't solve Shiba Inu's one big problem: Shiba Inu doesn't stand out in the sea of cryptocurrency players.
This brings us to my main point: I don't favor buying Shiba Inu. Of course, whether you hold or sell your stake may depend on when you invested. But the worst mistake any Shiba Inu investor can make right now is going all in on this ultra-risky cryptocurrency. Instead, it's best to diversify across assets that represent less of a risk.
Cryptocurrency, in general, is risky. And you shouldn't invest more than you can afford to lose. But if you want to increase your bet on this dynamic space and you already hold Shiba Inu, you could choose a leading player such as Ethereum or Bitcoin. Or you might consider increasing your investment in a safe theme such as dividend stocks.
There are many possibilities. But the most important thing is to diversify and balance your investments -- so any further crash in Shiba Inu won't crush your portfolio.
