Whether you're an avid investor or curious observer, by now you're probably familiar with the popular cryptocurrency Shiba Inu (SHIB 1.59%). It stirred up a speculative frenzy in October 2021 -- just one more in a year that was dominated by sky-high crypto returns.
It bears multiple similarities to the previous meme-token ruler, Dogecoin (DOGE 1.63%). But the two tokens are greatly separated by their returns; while Dogecoin generated a 3,500% gain in 2021, Shiba Inu rose an eye-popping 43,800,000%. In dollar terms, an investment of $2.29 in Shiba Inu on Jan. 1, 2021 would've made you a millionaire by the end of the year, had you held on.
Things were even crazier at one point, because the token was up by more than double that amount by the end of October, hitting an all-time high of $0.000089. But Shiba Inu has since declined by 75% to today's price of about $0.000022, and investors might be wondering if a repeat of its astronomical returns might be in the cards. Should you buy it now?
Keep an eye on changing regulations
One of the great arguments for owning cryptocurrencies in general is their decentralized nature, in the sense that they're not controlled or governed under the structure of the traditional financial system. This comes with benefits, but it also comes with significant costs.
With a regular bank account, the U.S. government guarantees up to $250,000 of your money in the event of a crisis, and there's insurance available for larger amounts. But these protections don't exist in the crypto realm, not even when trading with enormous cryptocurrency brokers like Robinhood or Coinbase. Those companies offer warnings in their regulatory filings that in the event of a hack, your tokens could be lost forever, with no recourse.
While regulators like the Securities and Exchange Commission (SEC) are looking at new protections for cryptocurrency investors, there's a different set of rules investors should be watching. There could be new tax laws on the way, which would require cryptocurrency brokers to report their customers' transactions to the Internal Revenue Service (IRS). If these rules come into effect in 2023 as planned, every time cryptocurrency investors dispose of their tokens, they'd be liable to pay taxes on any gains -- whether they're selling, exchanging, or even spending their tokens.
Why does this matter? Shiba Inu's investor base is made up of mostly retail traders, who might be averse to holding their tokens if they'd have to contend with complicated tax laws. As with any investment, taxes can be a major cost, and it factors into the risk-reward calculus when deciding whether to proceed.
Shiba Inu isn't winning as a payment mechanism
Cryptocurrencies face a broad struggle with consumer adoption. For Shiba Inu to truly become a currency, people must be willing to do transactions with it, and businesses must be willing to accept it. But so far, this hasn't happened, with just 610 merchants globally accepting the token as payment for goods and services.
While Shiba Inu isn't alone in the struggle for adoption, it's definitely lagging behind other tokens. Leading cryptocurrency Bitcoin crushes Shiba Inu with 7,703 businesses in the mix, and even Dogecoin is doing better, with 1,998 merchants accepting it, though it's worth pointing out that neither of them are headed toward world domination with those paltry numbers.
Volatility is a big reason for this problem. Tokens that can fluctuate thousands (or millions) of percentage points each month aren't stable enough to use in place of fiat currencies, because it becomes impossible to plan business activity around them.
The math might surprise you
Despite the above concerns, there's always a chance Shiba Inu could be whipped into another speculative frenzy and deliver strong returns. However, in a best-case scenario where the token reclaimed its all-time high of $0.000089, that would only represent a 300% return from today's price. It's many, many levels below the 43,800,000% return it delivered in 2021, and that's simply because the numbers are much larger now.
If Shiba Inu rose 43,800,000% from here, it would reach a price of $9.63 per token. Before you get excited, there are currently 589 trillion Shiba Inu tokens in circulation right now, so even at a price of $1 per token, that's a total market value of $589 trillion. For context, all of the recorded wealth on Earth right now stands at just $431 trillion.
Therefore, at a price of $9.63, Shiba Inu's total market value would be $5.67 quadrillion -- or 13 times the value of all the wealth on Earth.
Put simply, if every person, every business, and every government converted all of their cash and assets into Shiba Inu, it would only warrant a price of $0.73 per token. So investors who are buying the dip in Shiba Inu here in the hopes of picking up the same mind-bending returns as in 2021 have unfortunately set themselves up for disappointment.