Within the burgeoning world of cryptocurrencies, perhaps no token has garnered more attention than Shiba Inu (SHIB -2.91%). The price of this so-called Dogecoin killer skyrocketed more than 40,000,000% in 2021, easily making its early supporters millionaires along the way.
But past performance is never indicative of future results. And you should understand that there are serious risks when it comes to cryptocurrencies. The industry is still young, quickly evolving, and extremely volatile. Plus, there are tens of thousands of different projects out there, creating an intensely competitive environment.
If you're interested in Shiba Inu, here are three important things to consider before you decide to buy and become a member of the SHIBArmy.
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1. Dependent on hype
Ever since its public launch in August 2020, the price chart of SHIB, Shiba Inu's native token, looks like a roller-coaster ride. Historically, Shiba Inu has mainly relied on social-media hype to gain investor attention and any subsequent price pop, which is not a sound financial strategy that you should invest behind. The same goes for thinking that an Elon Musk tweet will support soaring values.
Even though SHIB's price has fallen 62% after hitting an all-time high in late October, it's still the 13th most-valuable cryptocurrency. But don't buy now with the hopes of catching the beginning of a bull run. This is an extremely volatile asset, and it lacks much in the way of a competitive edge (discussed below), meaning that an investment in SHIB would be based purely on speculation. The hope is that you can sell it to the next person at a higher price.
To make matters worse, data from coinmarketcap.com shows that 65% of Shiba Inu's outstanding supply is held by just 10 different crypto addresses. If these holders decide that SHIB is no longer a worthwhile investment, then that selling pressure would result in the token crashing. One of the most important traits of cryptocurrencies is decentralization, something Shiba Inu clearly doesn't have in this respect.
2. Lacking competitive strength
Shiba Inu is an ERC-20 token, which means it runs on the Ethereum (ETH -0.15%) blockchain. This makes SHIB compatible with the entire Ethereum ecosystem, including the many decentralized applications (dApps) that run on it. But it's not difficult to create a new ERC-20 token from scratch, limiting any differentiation Shiba Inu has.
Nonetheless, Shiba Inu does allow for programmability with the use of smart contracts, or self-executed computer programs that are triggered if certain conditions are met. This differs from its rival, Dogecoin, a fun competitor to Bitcoin that is nothing more than a payments network.
However, Shiba Inu trails far behind Ethereum in bringing on developers who want to build interesting projects on the network, a sign that these computer scientists don't really see a future for Shiba Inu. According to venture-capital firm Electric Capital, there are more than 4,000 monthly active developers working on Ethereum, making it a much better investment candidate.
3. No real-world utility
Undoubtedly, the ultimate success of a cryptocurrency depends on its potential to bring use cases to the mainstream. Shiba Inu developers understand this fact, and they're trying to make necessary upgrades.
The planned launch of Shibarium, a layer-2 blockchain that should help Shiba Inu scale and sidestep Ethereum's congested network and expensive gas fees, could make Shiba Inu more attractive for developers. And Shiberse, a newly announced metaverse project, might bring Shiba Inu into the thriving world of gaming.
But I remain skeptical about the prospects of these two initiatives. There are numerous other dApps, like Axie Infinity, a non-fungible-token-based video game built on Ethereum, and Serum, a decentralized exchange built on Solana, that show more promise for real-world utility.
With the potential for life-changing returns, a fear of missing out can take over, particularly in the cryptocurrency market. Shiba Inu has been a major winner, but I think its best days are in the past. Therefore, your investment dollars would be better off somewhere else.
