Although the investment landscape is exceptionally volatile at the moment, most investment classes have performed well since the pandemic bottom in March 2020. For instance, the widely followed S&P 500 was higher by 79% from its March 2020 low, as of the closing bell on May 10, 2022.
But a 79% gain would be peanuts for the cryptocurrency space. Despite Bitcoin retracing by more than 50% from its all-time high, the aggregate value of digital currencies has soared nearly tenfold, from $141 billion to $1.4 trillion, since its March 2020 trough.
Though crypto's big players, Bitcoin and Ethereum, get a lot of credit for this nominal increase, it's coins like Shiba Inu (SHIB 1.89%) that are responsible for attracting a lot of new investors into the cryptocurrency arena.
Shiba Inu's stellar year attracted a lot of new crypto investors
If you're wondering "Why Shiba Inu?" the answer is simple. Last year, Shiba Inu delivered what might be the greatest single-year return we'll ever witness.
When the curtains opened on 2021, a single SHIB token could be purchased for $0.000000000073, according to CoinMarketCap.com. Less than 10 months later, on Oct. 27, these same coins would change hands at an all-time high of $0.00008841. It might be difficult to tell with all these zeroes, but in eliminating six zeroes after its decimal point, SHIB gained an unfathomable 121,000,000%! Put another way, if you had the luck, wherewithal, and patience, to invest $1 in Shiba Inu at the stroke of midnight on Jan. 1, 2021, your position was worth more than $1.2 million by October 27.
Taking into account a retracement to end the year, Shiba Inu delivered a gain of around 46,000,000%. Keep in mind that the top-performing stocks every year typically gain 1,000% or perhaps a tiny bit more.
As I've previously pointed out, Shiba Inu's historic gains were assisted by crypto market dynamics. By this I mean certain crypto exchanges don't allow investors to short-sell -- i.e., bet on the price of a security to fall. There are also no options or futures contracts available for skeptics to bet against, with the exception of Bitcoin futures. In other words, an inherent buy bias existed that allowed social media fervor to take over.
A lot would need to go right for SHIB to reach parity with the U.S. dollar
But the big question on the minds of Shiba Inu's nearly 1.15 million holders is, "Can SHIB ever reach $1?" For some context, the token price as of this writing is $0.0000163. This implies a 6,134,869% increase would be needed to reach the equivalent of a dollar. Though that might sound like an impossible task, remember that SHIB gained approximately 121,000,000% in under 10 months last year.
Perhaps the single most important factor that could lift Shiba Inu is coin burn. The idea behind coin burn is similar to publicly traded companies repurchasing their own stock to reduce the number of shares outstanding. With crypto coin burn, tokens are sent to a dead blockchain address, which makes those coins permanently inaccessible. Taking tokens out of circulation should, in theory, increase the value of the remaining coins.
Last year, Ethereum founder Vitalik Buterin burned more than 410 trillion SHIB by sending them to a dead blockchain address. Buterin was gifted half of SHIB's 1 quadrillion tokens. This action removed 41% of Shiba Inu's circulating supply. In order to reach $1, the vast majority of tokens in existence would probably need to be burned.
Another critical factor for Shiba Inu's long-term success is the upcoming launch of Layer-2 blockchain project Shibarium. As things stand now, Shiba Inu is an ERC-20 token built on the Ethereum blockchain. While Ethereum is trusted and time-tested, its popularity leads to network congestion and exceptionally high transaction fees. Shibarium's primary goal is to significantly reduce transaction fees.
Aside from Shibarium making SHIB a more palatable payment option for merchants, the purpose of lowering transaction fees is to spur a crypto ecosystem where SHIB and other coins native to decentralized exchange ShibaSwap are used to facilitate transactions. This includes selling digital plots of land ("Shiba Land") in its own version of the metaverse, as well as developing non-fungible token (NFT)-based gaming. NFT and digital land marketplaces can't exist until transaction costs come way down.
The final part of the formula needed for SHIB to hit $1 is a social media push like we've never witnessed before. Shiba Inu holders would have to create a level of excitement and FOMO, that's the "fear of missing out," to put last year's enormous push to shame.
Is $1 ever going to be a realistic target for Shiba Inu?
While social media message boards show plenty of optimism, perhaps the question we should be asking is this: "Is $1 ever going to be a possibility for SHIB?"
Though you can never say never in the cryptocurrency arena, my suspicion is that Shiba Inu's chances of hitting parity with the dollar, on a percentage basis, are even lower than its token price. There's a laundry list of factors at work that make a $1 target virtually impossible.
To begin with, a $1 target would imply a staggering market value of $549 trillion for Shiba Inu, based on the coin supply listed on CoinMarketCap. To put this into some perspective, the largest publicly traded company in the U.S. is Apple. Its market cap is $2.5 trillion. In fact, gross domestic product last year for the entire world was an estimated $94 trillion. A $1 token price on SHIB assumes it's worth almost six times all economic activity on the planet, which makes no sense at all.
Another huge problem for Shiba Inu is its lack of differentiation and competitive advantages. Though you could claim its social media presence is a temporary competitive edge, the fact remains that Shiba Inu is nothing more than a payment coin tethered to the Ethereum network. There are thousands of digital currencies that can act as payment coins, which is going to make it difficult for Shiba Inu to stand out over the long run.
There's also no clear path to relevancy on the NFT-gaming front. With Shibarium still being tested privately, other projects are launching NFT-based games well ahead of Shiba Inu. To add, interest in NFTs has been plummeting. According to Google Trends, search interest in the term NFT has fallen off by 75% in just four months.
Coin burn presents another challenge. Even if businesses accepting SHIB burn a small percentage of what they receive, and the community supports coin burn events, making a dent into an estimated 549 trillion tokens is going to take a very long time.
The final straw is that history doesn't favor high-flying payment coins. When I examined the performance of payment coins and protocol tokens that delivered life-altering short-term gains, I found that virtually all retraced 93% or more of their value in under 26 months. I can only imagine how far Shiba Inu could fall after returning as much as 121,000,000% on an intra-year basis in 2021.