Dating back well over a century, the stock market has been one of the greatest wealth creators on the planet. While it may not outperform every year, its average annual increase over many decades handily surpasses other investment vehicles.
But over the short run, cryptocurrencies have handily outperformed the stock market. In the roughly 23 months since the stock market hit its pandemic low, the S&P 500 has slightly more than doubled in value. Meanwhile, the aggregate value of digital currencies has skyrocketed close to 1,100%.
Yet for one cryptocurrency, a gain of 1,100% is peanuts.
Shiba Inu-themed coins were on fire in 2021. Image source: Getty Images.
Shiba Inu has delivered jaw-dropping returns
There's little question that meme coin Shiba Inu (SHIB -9.24%) has been the hottest cryptocurrency on the planet since 2021 began. Investors could have purchased SHIB tokens at a microscopic $0.000000000073 at midnight on Jan. 1, 2021. As of this writing, those same coins are going for a slightly less microscopic price of $0.00003057.
By eliminating six zeroes after its decimal point, Shiba Inu has gained almost 41,900,000%! This means an initial investment of $2.39 at midnight on Jan. 1, 2021 is all it would have taken to make someone a millionaire.
Shiba Inu's jaw-dropping gains have been driven by a combination of increased visibility, crypto-market dynamics, and social media buzz. To begin with the former, SHIB tokens were listed on a number of new crypto exchanges last year. These new listings, which helped push the total number of holders above 1.1 million, along with the launch of decentralized exchange ShibaSwap last July, improved awareness of SHIB and dramatically increased liquidity.
Shiba Inu has also benefited from a clear buy bias in the crypto space. Stock market pessimists have easy access to placing downside bets via short-selling common stock and/or buying and selling options. In the cryptocurrency space, only Bitcoin offers an abundance of derivatives that pessimists can buy or sell. Although some crypto exchanges do allow short-selling of digital currencies, it's often difficult for skeptics to bet against high-flying tokens.
Lastly, Shiba Inu was one of the most-searched cryptocurrencies in the U.S. in 2021. With a large "army" of supporters on social media, SHIB tokens benefited immensely from confirmation bias.
Image source: Getty Images.
Forget Shiba Inu's metaverse ambitions -- this is more important
In recent weeks, the primary driver for Shiba Inu is its metaverse ties.
In its simplest form, the metaverse is the next iteration of the internet. It's a 3D virtual world that'll allow users to interact with their surroundings, including other users. Though estimates vary wildly, some believe the metaverse could be a $30 trillion opportunity in as little as 10 years. That's why investors have been throwing serious money at stocks and cryptocurrencies involved in the development of the metaverse.
Earlier this month, Shiba Inu's developers announced that they'd be selling or auctioning digital plots of land, known as Shiba Lands, in their own metaverse, which remains under development. The plan is for developers to create a queue system, with participants placed in line based on the number of Doge Killer (LEASH) tokens they own. LEASH is a Shiba Inu ecosystem token native to the ShibaSwap exchange. Queueing people by LEASH ownership should reduce the prospects of a digital land grab or land flipping.
While the potential for the metaverse is enormous, Shiba Inu's developers will likely be building out their version of a virtual world for another year, if not longer. The fact is, there's a far bigger milestone right under SHIB-holders' noses that's far more important than the project's metaverse ambitions.
As of Feb. 14, Shiba Inu's median holding period on Coinbase, the most-popular crypto exchange and ecosystem, had hit 80 days. That's a longer median holding period than Ethereum, and a huge increase from its median hold time of just six days in mid-October.
Shiba Inu becoming one of the longest-held cryptocurrencies may demonstrate that its holders truly believe in the long-term goals of the project. Longer hold periods are also helpful in reducing some of the volatility inherent with crypto that could scare away less-confident holders.
I'd also attribute at least part of this increase on ShibaSwap, which allows staking. This lets Shiba Inu holders earn passive income. But in order to do so, they'll need to hang onto their SHIB for longer periods of time. No matter the combination of reasons for this big increase in median holding time, it's easily the most positive thing SHIB has going for it right now.
Image source: Getty Images.
A trio of reasons to remain highly skeptical of SHIB
In spite of this momentum and SHIB's historic return since the beginning of 2021, there remains no shortage of reasons for investors to be highly skeptical.
The single biggest thing working against Shiba Inu is the project's lack of a competitive edge and differentiation. There are more than 17,000 listed cryptocurrencies on CoinMarketCap.com, and few have the distinction of standing out. You might be tempted to say that Shiba Inu's historic gain or growing community serve this function, but they don't.
If we get down to the nitty-gritty of Shiba Inu, it's nothing more than an ERC-20 payment coin built on the Ethereum blockchain. While its layer-2 blockchain project (Shibarium) could help lower transaction fees, it doesn't change the fact that there's nothing special about SHIB tokens or its network.
That leads to the second key point: Shiba Inu isn't accepted by many merchants. You'd think one of the largest digital currencies in the world would have a long queue of retailers willing to accept it. Yet according to online business directory Cryptwerk, only 635 global merchants accept SHIB as a form of payment. That's a fraction of a fraction, especially when you consider that there are more than 500 million entrepreneurs worldwide.
Shiba Inu has history working against it, too. Time and again, we've watched high-flying payment coins lose more than 90% of their value within 12 to 26 months after they peak. With Shiba Inu gaining as much as 121,000,000% at one point on an intra-year basis, the likelihood of an equally epic pullback is high.
My personal expectation continues to be that SHIB will retrace well over 90% from its late October high.
