Dating back more than a century, no asset class has more consistently made investors richer than the stock market. Even though stocks occasionally underperform bonds, commodities, and housing, none of these asset classes comes close to matching the long-term average annual return of the broader market.
But things change drastically if you're just looking at the performance of asset classes over the past couple of years. Since the March 2020 COVID-19 pandemic bottom, cryptocurrencies have run absolute circles around the stock market. Whereas the benchmark S&P 500 has pretty much doubled in two years, the aggregate value of all digital currencies is up by more than 1,200% to $1.88 trillion.
Though crypto's Big Two, Bitcoin and Ethereum, get a lot of credit for this surge in digital currency market value, it's the historic increase from meme coin Shiba Inu (SHIB -4.13%) that has really dropped jaws.
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Shiba Inu's 2021 gains were historic
When 2021 began, Shiba Inu was one of seemingly dozens of Shiba Inu-inspired coins looking to capitalize on the craze that pushed Dogecoin significantly higher. At midnight on Jan. 1, 2021, a single SHIB token could have been purchased for a minuscule $0.000000000073. But in less than 10 months, these same tokens would rocket as high as $0.00008841. Visually, it might be difficult to tell the difference between these two tiny numbers, but between Jan. 1 and Oct. 27 of 2021, Shiba Inu ate up six zeros after its decimal point and delivered a peak intra-year gain of around 121,000,000%! In other words, an investment of $1 at midnight on Jan. 1, 2021 could have made a patient/lucky investor a millionaire.
When the curtain closed on 2021, SHIB tokens gained in the neighborhood of 46,000,000%. It's a far cry from 121,000,000%, but it's likely the biggest single-year gain we may ever witness from an investment perspective.
As I've previously pointed out, Shiba Inu's historic run was primarily a function of increased visibility and crypto market dynamics. In terms of the former, SHIB benefited immensely from being listed on numerous new exchanges last year. Additionally, the launch of decentralized exchange ShibaSwap in July 2021 helped to improve liquidity and allowed holders to stake their coins. Since October, the median hold period of SHIB on crypto exchange Coinbase has soared from six days to 101 days.
As for crypto market dynamics, investors should understand that it's a lot easier to purchase derivatives (e.g., put options) on, or short-sell, a publicly traded stock than it is to bet against a high-flying but lesser-known digital currency. With minimal avenues to bet against cryptocurrencies not named Bitcoin, an inherent buy bias helped Shiba Inu.
Image source: Getty Images.
Can Shiba Inu hit $1 by mid-decade?
With Shiba Inu absolutely crushing it last year, its holders and social media supporters are hoping for an encore performance. In fact, some even believe it could eventually make a run to $1 per token.
The big question is: Can Shiba Inu reach $1, perhaps by the midpoint of the decade?
Before I dive into my view, let's examine the multiple catalysts that would be needed to push SHIB from microscopic fractions of a penny to parity with the U.S. dollar by 2025.
To begin with, the public launch of layer-2 blockchain solution Shibarium needs to occur sooner than later and go off without a hitch. The purpose of Shibarium is to significantly drive down transaction fees involving SHIB tokens. Pushing fees lower will not only make SHIB a more attractive payment option for merchants, but it's also the key step to fueling blockchain-based gaming. At the moment, Shibarium is being tested privately.
The next core catalyst is the development and launch of non-fungible token (NFT)-based gaming. Although we've already witnessed a handful of blockchain-based games generating significant revenue, Shiba Inu can't launch gaming until Shibarium can be trusted to substantially bring down transaction fees. Once Shibarium is publicly launched, NFT marketplaces can thrive.
To add to this point, Shiba Inu's own version of the metaverse needs to be a hit. The metaverse is viewed as the next iteration of the internet, which will allow connected users to interact with each other and their surroundings in 3D virtual worlds. Developers recently announced their intention to sell digital plots of land, known as Shiba Lands, in Shiba Inu's own version of the metaverse. Once again, this is all dependent on slashing transaction fees.
Finally, there would need to be some significant coin burn. When Ethereum founder Vitalik Buterin sent more than 410 trillion SHIB to a dead blockchain address, it removed approximately 41% of Shiba Inu's circulating supply. Large chunks of coins will need to be taken out of circulation over the next four years to really give SHIB some upward momentum.
Image source: Getty Images.
Being sent to the doghouse is more likely than $1 by 2025
If the cryptocurrency space has demonstrated anything, it's that nothing is impossible. But the chance of Shiba Inu hitting $1 by 2025 is so microscopically small in my view that I'd call it virtually impossible.
For starters, a $1 target on SHIB would produce a laughably high market value of $549 trillion, based on Shiba Inu's roughly 549 trillion outstanding tokens. That would be equivalent to 203 times the market value of Apple, a company that produced $112.2 billion in operating income over the trailing 12 months. It would also be a valuation of close to six times global gross domestic product. Not even in the wildest of wild scenarios can I see a digital token being worth six times the total market value of all goods and services on the planet in a given year.
To build on this idea, Shiba Inu's benefit from coin burn is largely in the rearview mirror. Even with some businesses burning a small portion of the SHIB they receive, and future events promising to reduce the circulating supply, a massive amount of coins are still in circulating supply. This makes reaching $1, or even $0.01 for that matter, pretty much impossible.
Another problem Shiba Inu will run into is its lack of differentiation and competitive advantages. Although it's popular on social media, the reality is it's nothing more than an ERC-20 token built on the Ethereum blockchain. Or, in English, it's just a payment coin. There's nothing particularly impressive about a payment coin. The vast majority of digital currencies can act as a payment token, which will make it difficult for SHIB to have any sort of staying power.
History has also proven unkind to payment coins and protocol tokens on payment networks following life-altering gains. In previous instances where payment coins and protocol tokens gained 20,000% or more in a short time frame, these same coins went on to lose between 93% and 99% of their value in the 12 months to 26 months following their respective peaks. With SHIB rocketing higher by as much as 121,000,000% in under 10 months, I'd have to think a massive reversion awaits (and is already underway).
