Looking back more than a century, no asset class has more effectively built wealth for investors than the stock market. Even though stocks occasionally took a back seat to bonds, commodities, or housing, they've handily outperformed the average annual return of other asset classes over very long periods of time.
But over the short run, it's a very different story. Since the pandemic lows set two years ago, cryptocurrencies have run circles around the stock market. While the blue chip digital currencies, Bitcoin and Ethereum, often get all the credit for these gains, meme coins like Shiba Inu (SHIB -0.26%) are driving enthusiasm in the crypto space.
Shiba Inu-themed tokens were on fire in 2021. Image source: Getty Images.
Shiba Inu delivered historic gains last year
For those who might not be familiar with Shiba Inu, it delivered what could be the highest single-year return you'll ever witness. Shiba Inu tokens could have been scooped up at midnight on Jan. 1, 2021, for a microscopic $0.000000000073 apiece. By late October, when SHIB hit an all-time high of $0.00008841, investors who'd held throughout the year were up by (drum roll) 121,000,000%! Shiba Inu ultimately ended the year higher by roughly 46,000,000%. This means it would have only taken an investment of a few dollars to become a millionaire in 12 months.
Shiba Inu's historic year was primarily made possible by crypto market dynamics and increased visibility.
Within the stock market, it's relatively easy to bet against a security if you believe it'll head lower. This can be done by short-selling shares of the company or buying a derivative, such as a put option.
Those same avenues to bet against a security don't always exist in the cryptocurrency space. Although some crypto exchanges do allow investors to short-sell cryptocurrencies, the practice is far less common. What's more, outside of Bitcoin, there aren't derivative options for skeptics to lean on. The point being that the cryptocurrency space has natural buy biases built in for lesser-known tokens.
Increased visibility was key, too. Shiba Inu was listed on a number of new crypto exchanges last year, which helped improve liquidity. Additionally, the launch of decentralized exchange ShibaSwap in July further boosted liquidity and offered the ability for holders to stake their tokens. Staking has dramatically increased the median hold period for SHIB tokens.
The big question now is: Can Shiba Inu duplicate its success in 2022 and remove yet another zero after its decimal point?
Image source: Getty Images.
Here's what needs to happen for SHIB to reach $0.0001 in 2022
If the cryptocurrency space has demonstrated anything, it's that anything is possible under the right circumstances. After all, Bitcoin gained as much as 8,000,000,000% in an 11-year stretch. But if SHIB is going to effectively quadruple in value and reach $0.0001 in 2022 (for a market value of $55 billion), a few things are going to need to happen.
Arguably the most important step is for the rollout of layer-2 blockchain project Shibarium to occur sooner than later.
Shiba Inu is an ERC-20 token built on the Ethereum blockchain. Though Ethereum is a trusted network that's seen a steady increase in average daily transactions over the past five years, it's also prone to congestion and exceptionally high transaction fees. The latter makes it particularly difficult to use SHIB for smaller purchases in a real-world setting.
Shibarium is a layer-2 blockchain specifically designed to lower transaction fees. If SHIB can become more competitive from a fee standpoint, merchants might be more willing to accept it as a form of payment. The expectation is for Shibarium to launch in the public setting in the first half of 2022.
If (key word!) the launch of Shibarium is successful, the next major catalyst is the ongoing development of gaming based on non-fungible tokens (NFTs).
Developers have already announced their intention to sell Shiba Lands in their own metaverse. These digital Lands will be stored as NFTs. Buying and selling these NFTs needs to be relatively inexpensive, which is why Shibarium is so important. Because the metaverse is a multitrillion-dollar opportunity, investors' imaginations could run wild depending on what the development team announces with regard to NFT-based gaming in the second half of 2022.
Lastly, social media buzz would probably need to hit new heights for SHIB to see $0.0001. Last year, Shiba Inu was the fourth most-searched cryptocurrency in the United States. If confirmation bias is strong enough on social media, Shiba Inu could push a lot higher.
Image source: Getty Images.
While possible, Shiba Inu hitting $0.0001 in 2022 is highly unlikely
If everything were to go right for Shiba Inu and the buzz created on social media was even more visible than in October, SHIB could, in theory, reach $0.0001. But my take remains unchanged: that it's highly unlikely to hit $0.0001 in 2022, and might even wind up as one of the worst-performing larger digital currencies this year.
Shiba Inu's issues effectively boil down to competition, utility, and historic precedence.
According to CoinMarketCap.com, there are approximately 18,000 cryptocurrencies in existence. Only a very small number of these projects are likely to stand out. Despite successfully creating buzz on social media, Shiba Inu doesn't offer anything substantive that would allow it stand out over a long period of time. As noted, it's nothing more than an ERC-20 payment coin at the moment. Without any true differentiation, it'll be almost impossible for Shiba Inu to reach a valuation in excess of $50 billion.
In terms of utility, Shiba Inu doesn't offer much. If there's a glass-half-full perspective here, it's that the number of merchants accepting SHIB as a form of payment has rocketed from just a few dozen in October to 642 by March 7. The other side of the coin is that the 642 merchants accepting SHIB, per online business directory Cryptwerk, are mostly obscure and represent a minuscule number of worldwide businesses. In other words, SHIB offers very little real-world use.
But the biggest worry of all, at least in 2022, might be historic precedence. Following life-altering gains in other payment coins and protocol tokens on payment networks, it's become common for those tokens to lose 93% to 99%-plus of their value in the 12 to 26 months that follow their peaks. Given that Shiba Inu gained 121,000,000% on an intra-year basis at its peak, a whopper of a reversion is likely.
