For well over a century, the stock market has been known as one of the world's greatest wealth creators. Its long-term average annual return handily surpasses other investment vehicles, such as bonds, housing, and commodities (e.g., gold and oil).

But over the past couple of years, cryptocurrencies have lapped the return of the broader market many times over. Whereas the S&P 500 has slightly more than doubled since hitting its pandemic low in March 2020, the aggregate value of digital currencies has skyrocketed more than 1,250% over the same period.

While the "Big Two," Bitcoin and Ethereum, are largely responsible for this nominal increase, it's meme coin Shiba Inu (SHIB -14.65%) that's been busy dropping jaws and setting records.

Two Shiba Inu-breed dogs intently looking at something.

Shiba Inu-themed coins were red-hot in 2021. Image source: Getty Images.

A $100 investment one year ago would have gone a long way

When 2021 began, a single SHIB token could be purchased for a microscopic $0.000000000073. Some 12 months later, these same coins were going for about $0.000034. In eliminating six zeroes, Shiba Inu delivered a historic gain of approximately 46,000,000% in a year. That was enough to make investors who'd put a little over $2 to work at midnight on Jan. 1 millionaires.

But even if investors didn't precisely buy at midnight on Jan. 1, they're doing extremely well if they bought early in the year and are still hanging onto some portion of their investment.

For example, exactly a year ago, as of Feb. 6, notes that SHIB closed at $0.000000008264. This means it gained more than 11,200% in the first 37 days of 2021. But if crypto investors looked past this huge gain and bought in at the Feb. 6 close, they'd currently be sitting on a return of 277,611% one year later. Put another way, a $100 investment in SHIB on Feb. 6, 2021 would be worth $277,711 on Feb. 6, 2022. Not a shabby return by any means, especially considering that the total return for the S&P 500, including dividends, was "just" 28,536% since 1965, through this past weekend.

How did Shiba Inu produce such eye-popping returns in such a short time frame? Let's take a closer look.

Two diverging digital charts leading to a digital rocket readying for launch.

Image source: Getty Images.

Sizing up SHIB's perfect year

Shiba Inu's historically impressive 2021 can primarily be chalked up to a trio of factors.

First, there was a significant improvement in the visibility of the coin throughout the year. A number of cryptocurrency exchanges began listing SHIB for trading, which improved liquidity and awareness. Not surprisingly, ownership of SHIB surpassed the psychologically important 1 million unique wallet holder threshold in late 2021.

To build on this point, the July launch of decentralized exchange ShibaSwap was a key catalyst that helped fuel the rally. ShibaSwap allows investors to stake their coins in order to earn passive income. But to do so, they need to hang onto their SHIB tokens for longer periods of time. Since this launch, SHIB's median holding period on Coinbase has skyrocketed from about one week to almost 11 weeks.

Second, the market dynamics of the cryptocurrency space have benefited certain high-flying coins, like Shiba Inu. As an example, it's relatively easy for investors to short-sell a publicly traded stock or, in many instances, turn to derivatives like options as a means to bet on an expected decline in a security. The point being that there's abundant access to downside bets in the stock market.

By comparison, not all cryptocurrency exchanges allow users to short-sell securities -- and if they do, it's generally for only a small group of digital tokens. Likewise, unless you're betting against Bitcoin via a futures contract or exchange-traded fund, there aren't derivatives skeptics can use to bet against lesser-known coins. With few avenues to bet against Shiba Inu, a buy bias emerged that allowed it to thrive.

The third factor that's lifted SHIB is its massive social media presence. Shiba Inu was one of the four most-searched cryptocurrencies in 2021, and it has a loyal following on platforms like Reddit and Twitter. Though confirmation bias rarely has long-term staying power, social media provided a vessel for SHIB holders to successfully hype their investment.

A visibly frustrated crypto trader grabbing the top of their head while looking at losses on their computer screen.

Image source: Getty Images.

Shiba Inu isn't worth the risk (or your money)

Although investors remain excited about a trio of catalysts in 2022, multiple factors, including history, suggest SHIB's historic rise will be short-lived.

What continues to be the biggest hurdle for the world's hottest cryptocurrency is its lack of competitive advantages and true differentiation. The problem with Shiba Inu is that it's nothing more than a payment coin built on Ethereum's blockchain. While the layer-2 blockchain project known as Shibarium could help lower transaction fees, there's simply nothing special about using a digital token to pay for goods or services. Comparatively, there are countless high-quality blockchain projects that involve the creation of decentralized finance networks or using smart contracts to facilitate the development of decentralized applications.

Aside from not standing out in any meaningful way, Shiba Inu hasn't done a particularly good job of attracting merchants to accept it as a form of payment. Online business directory Cryptwerk notes that only 612 global merchants (as of Feb. 6) have given the green light to SHIB as a form of payment.  That's a fraction of a fraction when you consider there are more than 500 million entrepreneurs worldwide. In essence, Shiba Inu isn't doing the one thing well that it was designed to do.

As noted, history isn't Shiba Inu's friend, either. Even though life-altering gains can be somewhat common in the crypto space, huge increases in payment coins over a short time frame have almost always led to equally large price reversions. If precedence holds true, SHIB could lose up to 99% of its value in the 26 months following its October 2021 peak.

Shiba Inu isn't worth the risk, or your money, given these stated obstacles.