Drivers often go faster than the speed limit. Pedestrians frequently jaywalk. But the laws of supply and demand are rarely broken.
When the supply of something declines and demand levels at least stay the same as before, the price of that something will move higher. And if the decrease in supply is significant, the price will move a lot higher.
Shiba Inu (SHIB -7.87%) investors are hoping that the laws of supply and demand work in their favor in a huge way going forward. A much-awaited mechanism to support the burning of the digital token is on the way. Could Shiba Inu even burn its way to $0.01?
Image source: Getty Images.
A trillion here, a trillion there
The Shiba Inu Discord moderator known as SHIBQueenie recently detailed in a tweet just how great an impact the forthcoming burn portal might have. She especially saw the potential for ShibaSwap 2.0 to be a focal point for burning activity when the new version of the decentralized exchange launches.
SHIBQueenie estimated that roughly 44.4 trillion tokens could be burned in a year on ShibaSwap 2.0. The assumptions used in her calculations included monthly trading volume of $10 billion per month (well below current average levels) and a 1% transactional burn fee.
Shibarium could present another great opportunity, in SHIBQueenie's view. She projected that the layer-2 solution could support the burning of around 22.2 trillion tokens per year. This figure assumed a $5 billion monthly trading volume for Shibarium outside of ShibaSwap and a 1% transactional burn fee.
However, the 1% fee for ShibaSwap 2.0 could be "stacked" on top of the 1% fee for Shibarium. If so, the combined burns between the two platforms could total 88.8 trillion tokens annually.
SHIBQueenie also pointed out that there are other avenues for Shiba Inu tokens to be burned, including community burns and other burn projects. She tweeted that the Shiba Inu's supply could be reduced by more than 111 trillion tokens in a "bad" year.
Burn, baby, burn?
Let's assume that 111 trillion SHIB tokens can indeed be removed from circulation on an annual basis once the burn portal, Shibarium, and ShibaSwap 2.0 launch. What would it take for Shiba Inu to burn its way to the almost magical price of $0.01?
The meme coin's current price stands at $0.0000248. (Note: SHIBQueenie's calculations used the then-current price of $0.000027, but we'll stick with her yearly burn level.) There are around 549 trillion Shiba Inu tokens currently in circulation. The cryptocurrency's market cap is close to $13.6 billion.
The following chart shows how Shiba Inu's price would be impacted by sustained burns of 111 trillion tokens per year.
Chart by author.
At year five, there would only be 105 trillion SHIB tokens remaining in circulation. The price of the token would have more than quintupled to $0.0001298. However, that's still a long way off from reaching $0.01. To hit that lofty price target, the number of SHIB tokens would need to be slashed to only around 1.36 trillion.
Reality check
Admittedly, there's a big catch with those projections. They assume that demand will remain the same as it is now and that Shiba Inu's market cap doesn't change along the way. That's a highly unlikely scenario if the meme coin's price took off in a dramatic fashion.
However, our reality check can bite both ways. Based on recent data, the demand for Shiba Inu is declining with fewer individuals holding the cryptocurrency. Lower demand can offset at least in part some of the gains resulting from burning.
There's also a big question about how many tokens will actually be burned. SHIBQueenie's methodology is sound, but her calculations are only hypothetical. The Shiba Inu key developer known as Archangel warned last month that a burn of 90% of SHIB tokens wasn't on the table.
Shiba Inu probably won't be able to burn its way to $0.01. However, increased burning should boost the token's price to some extent. The laws of supply and demand explain why.
