Over the long run, the stock market has been a virtually unmatched wealth-building machine. It may not outperform bonds, commodities, or housing every year, but the average annual return of stocks over the past century leaves these other investment vehicles in the dust.
But over the past couple of years, cryptocurrencies have lapped the stock market many times over. While the biggest names in crypto often get all the glory, it's meme coin Shiba Inu (SHIB 2.11%) that's delivered what might be the most historic gain we'll ever see.
Shiba Inu-inspired tokens skyrocketed in 2021. Image source: Getty Images.
Shiba Inu had a record-setting 2021
When the clock struck midnight on Jan. 1, 2021, a single SHIB token could have been purchased for a microscopic $0.000000000073. But less than 10 months later, on October 27, Shiba Inu would hit an all-time high of $0.00008841. Yes, that's still a microscopic figure, but it has six fewer zeroes after the decimal point. For those you keeping score at home, SHIB gained as much as 121,000,000% on an intra-year basis before closing the curtain on 2021 with a gain of around 46,000,000%.
CRYPTO: SHIB
Key Data Points
Multiple factors went into Shiba Inu's historic year. For instance, it received lots of added visibility and improved liquidity due to being listed on numerous crypto exchanges.
To build on this point, the launch of decentralized exchange ShibaSwap in July 2021 further improved liquidity and gave investors the opportunity to stake their coins. Since October, the median holding period for SHIB on leading crypto ecosystem Coinbase has increased from just six days to 99 days, as of March 18.
As I've previously pointed out, crypto market dynamics have helped, too. Since it's a lot tougher for skeptics to bet against lesser-known digital currencies than it is to short-sell stocks or buy derivatives (e.g., a put option), there's something of an inherent buy bias built into the crypto market.
When the curtain closes on 2022, SHIB could be a lot lower than it is now
But for as outstanding a year as Shiba Inu had, there's a very realistic possibility it adds, not subtracts, another zero after its decimal point in 2022. Here are five reasons Shiba Inu can end 2022 below $0.00001.
Image source: Getty Images.
1. It lacks differentiation and utility
Arguably the single biggest issue with Shiba Inu is its complete lack of differentiation and competitive edge.
According to CoinMarketCap.com, there are more than 18,000 listed digital currencies, which means it's becoming tougher by the day to stand out. In Shiba Inu's case, it's nothing more than an ERC-20 token built on the Ethereum blockchain. Or, in simpler terms, it's just a payment coin. There's nothing special about payment coins, which makes it unlikely that Shiba Inu will be able to maintain a lofty market value of $12 billion.
To add, Shiba Inu isn't even a particularly popular payment coin. On one hand, optimists could point to the number of merchants accepting SHIB growing from a few dozen in October to 646 by mid-March, per online business directory Cryptwerk. On the other hand, there are more than 32 million businesses in the U.S. alone and north of 500 million entrepreneurs worldwide. A majority of the businesses accepting SHIB for payment are obscure online companies. In short, SHIB has virtually no real-world utility.
2. Crypto has been unable to decouple from the stock market
Another big problem for Shiba Inu and its peers is that the crypto market has become more and more intertwined with Wall Street. This is to say that cryptocurrencies and Wall Street have risen and dropped together in recent months.
With the crypto market unable to create its own identity, it could be in for a rough patch ahead. That's because the Federal Reserve recently raised lending rates for the first time in four years and opined that six additional 25-basis-point hikes could be on the way in 2022. With inflation soaring, lending rates rising, and the select Treasury yield curves inverting, the deck would appear to be stacked against equities this year.
Image source: Getty Images.
3. The Shiba Inu metaverse is still a ways off
A third reason for Shiba Inu to tail off throughout 2022 is the waiting game investors are having to play when it comes to the Shiba Inu metaverse. The metaverse being the next iteration of the internet that allows connected users to interact with each and their surroundings in 3D virtual environments.
Recently, Shiba Inu's developers announced plans to sell digital plots of land (known as Shiba Lands) in their version of the metaverse. This announcement came after unveiling plans to develop blockchain-based gaming as well.
While this might all sound exciting, Shiba Inu's metaverse and gaming are set to launch after a number of other competing projects. With protocol revenue already falling significantly for a few blockchain-based gaming projects, it's not clear if Shiba Inu's metaverse or non-fungible token (NFT)-based game will even have much of an audience by the time it launches.
4. NFT interest has fallen off a cliff
Something else that should concern Shiba Inu investors who are pumped about the metaverse and NFT-based gaming is the sudden drop-off in NFT interest.
OpenSea, the largest NFT marketplace, accounted for $3.16 billion of $3.25 billion in total NFT sales this past August, leading to $386 million in monthly fees. In February, fee-based revenue from NFT sales fell by about half. As of this month, NFT fee revenue is on track to hit just $14 million. Both daily NFT volume and the fee revenue collected by OpenSea have fallen off a cliff.
For Shiba Inu to maintain momentum higher, it's going to need a mammoth push from gaming and its metaverse ambitions. At the moment, it sure looks like investors have tired of the brief NFT craze.
Image source: Getty Images.
5. History isn't its friend
The fifth and final reason investors shouldn't be surprised to see Shiba Inu trading below $0.00001 by the end of the year is history.
Over the past five years, there have been a few instances of payment coins or protocol tokens on payment networks delivering life-altering gains over a short time frame (typically a year or less). After hitting their respective peaks, virtually all of these payment coins and protocol tokens went on to lose between 93% and 99% of their value in the 12 months to 26 months that followed.
The closest example to Shiba Inu I can find is privacy coin Verge, which galloped higher by nearly 1,200,000% in a year. Privacy coins are designed to obfuscate the sender and receiver of a payment. After peaking, Verge went on to lose 99.6% of its value in roughly two years. Shiba Inu's peak gain was roughly 100 times that of Verge, which leads me to believe that an equally large reversion still awaits.
