Over the very long run, arguably no asset class has helped people generate wealth quite like the stock market. Even though stocks don't go up every year, the average annual return of the equity market is higher than other asset classes, such as gold, bonds, and housing.
But it's an entirely different story if you narrow the lens. Since the pandemic bottom 26 months ago, cryptocurrencies have run absolute circles around the stock market. Even with the value of the crypto market declining nearly 60% from its all-time high, the aggregate value of digital currencies has soared more than $1.1 trillion, or 806%, since hitting its pandemic valuation bottom.
Since Bitcoin and Ethereum account for nearly 64% of the $1.28 trillion in total crypto market value, they're often attributed with leading this charge higher. However, its ultra-popular meme coin Shiba Inu (SHIB -1.10%) that's played a critical role in driving new investors into the space.
Shiba Inu's 2021 gains were truly historic
Although the crypto market has produced its fair share of jaw-dropping short-term gains, what Shiba Inu did in 2021 might stand the test of time as the single greatest year on record for an asset.
When clocks struck midnight on Jan. 1, 2021, a single SHIB token could be purchased for a minute $0.000000000073. If you're curious why there are so many zeroes, keep in mind that when Shiba Inu made its debut in August 2020, it had a 1 quadrillion coin supply. Less than 10 months later, SHIB would rally to hit its all-time high of $0.00008841. Between Jan. 1 and this Oct. 27 high, Shiba Inu gained more than 121,000,000%. Put another way, a $1 investment at the stroke of midnight turned into $1.21 million in under 10 months.
To be fair, Shiba Inu did end 2021 on a bit of a sour note. Yet even with a greater than 60% retracement from its all-time high, SHIB closed out 2021 with a gain of around 46,000,000%. A single-year gain of this magnitude may not be seen again.
Aside from vastly improved visibility (i.e., more crypto exchange listings) and better liquidity following the launch of decentralized exchange ShibaSwap in July, it's crypto market dynamics that appear to have been Shiba Inu's top catalyst in 2021. While it's relatively easy to short-sell publicly traded stocks or purchase derivatives, such as an options contract, betting against cryptocurrencies not named Bitcoin can be extremely difficult. In fact, some crypto exchanges don't allow short-selling. This created a natural buy bias that fed into an already momentum-driven social media campaign.
What would need to happen for SHIB coins to be worth a penny?
But the big question on most Shiba Inu hodlers' minds ("hodlers" is a purposeful misspelling of holders) is whether their coin can ever reach $0.01. For some context, SHIB tokens could have to increase more than 84,000%, at the time of this writing, for $0.01 to become a reality.
The way I see it, there are three catalysts that would be absolutely necessary for Shiba Inu to make a run at $0.01: coin burn, innovation, and social media-driven momentum.
Perhaps the biggest challenge for Shiba Inu is to reduce its enormous circulating coin supply. That's where coin burn comes into play. Think of coin burn like a publicly traded company repurchasing its own stock. By reducing the number of shares outstanding, each remaining share becomes that much more valuable. In theory, the same thesis would hold water with coin burn. By sending tokens to dead blockchain addresses which can't be accessed, each remaining coin should be more valuable.
Last year, Ethereum co-founder Vitalik Buterin, who was gifted roughly half of SHIB's circulating coin supply by mysterious founder "Ryoshi," sent more than 410 trillion tokens to a dead blockchain address. In one fell swoop, 41% of SHIB's 1 quadrillion coin supply was permanently taken out of circulation. More large burn events would be needed to propel SHIB to $0.01.
Second, Shiba Inu's developers would have to wow investors with their innovation. This includes the upcoming launch of layer-2 blockchain project Shibarium, which is designed to substantially lower transaction fees, and the subsequent launch of non-fungible token (NFT)-based gaming. Shibarium launching successfully is critical to NFT marketplace transactions being executed at a reasonably low price.
The third necessary factor for Shiba Inu to hit a penny would be social media momentum. Just as close-knit communities and hashtags drove new money into Shiba Inu last year, excitement over the project would likely have to hit new highs in the future to gather enough momentum to send SHIB more than 84,000% higher.
Is $0.01 a realistic target price for Shiba Inu?
The above scenario paints a utopian picture of what needs to happen for Shiba Inu to reach $0.01. But is a penny a realistic future price target for this popular meme coin? My view is that it would be virtually impossible to reach.
For starters, Shiba Inu would need to burn an exceptionally large number of coins to build enough momentum to send its token price markedly higher. While Buterin was able to provide a hearty pop by burning over 410 trillion tokens at the click of a button, no such large burn events are on the horizon. Burning billions of tokens here and there won't make a dent when CoinMarketCap.com lists 549 trillion tokens in circulation.
Another big problem is valuation. Although there are no tried-and-true rules when it comes to valuing cryptocurrencies, a $0.01 price would place a nearly $5.5 trillion valuation on Shiba Inu. That's over twice the market cap of Apple, a company that generated $116.4 billion in operating cash flow over the past 12 months, for a coin that's demonstrated virtually no real-world utility.
That leads to the next point: Shiba Inu's lack of competitive advantages and utility. At its core, Shiba Inu is nothing more than an ERC-20 token built on the Ethereum blockchain. In plainer terms, it's a payment coin. As I've previously pointed out, there's nothing particularly special about payment coins. Virtually any digital currency can act as a payment coin, as long as merchants are willing to take it.
What's more, very few global retailers are willing to accept SHIB as a form of payment. Online business directory Cryptwerk lists only 659 global merchants as accepting SHIB, as of May 22, 2022. Mind you, roughly 20% of these merchants are crypto services, which aren't even true retailers.
Lastly, Shiba Inu has history working against it. With the exception of Bitcoin, virtually every payment coin that delivered life-altering gains in a short time frame gave back 93% to 99%+ of its valuation in the 26 months following its peak. Shiba Inu is closing in on a 90% retracement from its all-time high in just seven months, and it could, presumably, have much further to fall after a 121,000,000% intra-year gain.
A $0.01 price sounds like an intriguing target following last year's historic gains, but there's absolutely nothing to support a run (or valuation) of that magnitude.