Last year was a blockbuster for cryptocurrencies, with an influx of tokens hitting investors' radars beyond the market leaders Bitcoin (BTC 0.04%) and Ethereum (ETH -0.81%). The overall value of the industry soared from $770 billion in January to a whopping $2.9 trillion by November, although it has since lost about two-thirds of its value.
But when it comes to gains, one cryptocurrency stood clearly above the rest last year. Controversial meme token Shiba Inu (SHIB -2.87%) delivered a return of 43,800,000% between Jan. 1 and Dec. 31, 2021. There's no need to reach for the calculator: If your timing was perfect, an investment of just $3 would've turned into $1.3 million over that period.
Unfortunately for investors who were late to the party, Shiba Inu hasn't fared so well in 2022. It's sitting on a steep year-to-date loss of more than 75%. Some investors might be thinking they should buy the dip ahead of a possible repeat of 2021's life-changing return, so let's explore whether that's a good idea.
Image source: Getty Images.
New rules are on the way
Investors have been drawn to cryptocurrencies not only for their significant returns over the past few years, but also for their decentralized and unregulated nature. A veil of anonymity has allowed people to think like they're operating outside of the traditional financial system, which, especially lately, is beset by inflation and inefficiencies.
But after a number of catastrophic failures in the crypto industry, including the recent collapse of stablecoin TerraUSD, the U.S. government is racing to build guardrails to protect retail investors. Reclassifying many tokens as securities, which would impose tight compliance and audit rules on brokers, is a measure that will likely take effect.
And beginning in 2023, cryptocurrency brokers will be required to report their customers' trading activity to the Internal Revenue Service, to legitimize investing activity and to make it easier to tax.
But these changes come at a cost. They eliminate the popular benefit of anonymity, and they could also make investing more expensive as additional costs are incurred by brokers and exchanges to comply with the new rules. Plus, at the individual level, investors would need to factor in the cost of accounting for their annual crypto activity to ensure tax liabilities are paid.
This might impact Shiba Inu, which mostly serves as a speculative vehicle without a real-world use case; for example, just 659 businesses accept the token as payment for goods and services globally. If all of the potential new rules come into play, smaller investors might conclude that making bets on Shiba Inu is just too much trouble, which would hurt its ability to make big price gains.
The math problem
Shiba Inu is much more valuable now than it was on Jan. 1, 2021, when it started to make its historic run. At the current price per token of $0.0000081, and with 589 trillion tokens in circulation, it has a market value of $4.5 billion.
To match its 43,800,000% return from 2021, Shiba Inu's price per token would need to jump to roughly $4.80. That would send the overall value of all Shiba Inu tokens to a mind-blowing $2.8 quadrillion.
That would make Shiba Inu 1,200 times more valuable than Apple, the world's largest company. It would also be worth 33 times more than the annual gross domestic product (GDP) of the entire world.
In other words, that return is, for all intents and purposes, completely out of the question.
There is one path to $4.80 for Shiba Inu
There is one way Shiba Inu could reach that lofty price target purely on a cosmetic basis, though it won't yield the desired return. That's by shrinking the number of existing tokens down from 589 trillion to about 1.28 billion.
In that situation, Shiba Inu would maintain the same total market valuation as it has right now. But it would send the price per token to about $4.80 each to make up for the reduction in supply. But there's a catch: Every Shiba Inu holder would need to participate in order to bring supply down that much (by 99.99998% to be precise), fully offsetting any potential price gain they would receive.
Shiba Inu developers are trying to do this on a smaller scale at the moment. One tool they're building is SHIB: The Metaverse, which is a virtual world for the Shiba Inu community. It will contain exclusive benefits for holders of non-fungible tokens (NFTs), in addition to 100,595 virtual land plots purchasable using the Ethereum cryptocurrency.
Landowners will be allowed to change the name of their plots in exchange for a fee paid in Shiba Inu tokens, which will be burned and taken out of the supply forever, though it's going to take a mighty effort to shrink supply by the aforementioned amount.
In the end, while another 43,800,000% price gain is technically possible, it probably won't mean anything this time around.
