The cryptocurrency market is going through one of the roughest periods in its short history. In just seven months, the combined value of all cryptocurrencies has plunged about 70% to just $900 billion from its all-time high of more than $2.9 trillion.
The much-hyped meme token Shiba Inu (SHIB -6.44%) took the crown for best performer in 2021 with a return of 43,800,000% -- a gain that could have made investors millionaires for the price of a cup of coffee, if their timing was perfect. But in a stunning reversal, Shiba Inu is now one of the biggest losers after suffering a decline of about 90% from its all-time high.
The token trades comfortably below $0.00001, a price that some had seen as a floor, adding another zero behind the decimal point with its current price of about $0.000008. With such steep losses, investors might be wondering what the next move is, so let's explore the possibilities.
Image source: Getty Images.
The worst-case scenario
Could Shiba Inu really fall even further from here? It's a reality many battered and bruised investors might have to face. Sentiment toward high-flying speculative assets has shifted from positive to negative -- and not just in cryptocurrencies, but also in the broader stock market. The Nasdaq 100 technology index, for example, is currently in a bear market with a 31% loss year to date.
But there are challenges on the horizon for cryptocurrencies specifically. The U.S. government is considering a range of new rules and regulations to protect retail investors from the kind of losses they're currently suffering. These rules will likely lift the veil of anonymity from crypto investors by forcing brokers and exchanges to comply with the same strict auditing guidelines that apply to other financial securities like stocks and bonds.
Additionally, the Internal Revenue Service will be able to see all investing activity starting in 2023, as brokers will have to report their clients' transactions for tax purposes each year. The decentralized, deregulated nature that has made cryptocurrencies so popular is at risk, and it's unknown whether most of the crypto faithful will stick around -- especially those invested heavily in meme tokens like Shiba Inu that have little or no utility.
On that note, true, sustained gains in value for Shiba Inu will require widespread adoption among consumers and businesses. If a consumer can't spend tokens to buy goods and services, then they have little incentive to hold those tokens except in the hope that one day, someone will buy them at a higher price. In other words, it's pure speculation.
Right now, just 659 merchants in the world accept Shiba Inu as payment, which isn't enough to move the needle. And given the recent price collapse, Shiba Inu investors appear to have lost faith that it can become a useful player in the global payments network.
The best-case scenario
The Shiba Inu community has made a range of price predictions since the token's historic run last year, some more outlandish than others. A popular goal is $1 per token, which would send Shiba Inu's total valuation to $589 trillion, based on the total supply of 589 trillion tokens. It's a lofty, and completely ridiculous, number.
There are simply too many Shiba Inu tokens for the currency to reach a price anywhere close to that mark, and it's a problem developers are trying to solve. Using a range of initiatives like the metaverse -- a collection of virtual worlds -- the community is able to burn tokens, which removes them from circulation forever, by completing specific activities.
Token holders who own virtual land inside SHIB: The Metaverse, for example, can pay a Shiba Inu–based fee to rename their plot, and those tokens will be burned. But there's a catch: Removing tokens from circulation doesn't add any actual value to Shiba Inu, it simply results in a cosmetic increase in price. If half the tokens in supply were burned, which would double the price, the sum value of the remaining tokens would be exactly the same as it was before, resulting in no gain for investors.
That raises the question: What is a realistic price target for Shiba Inu? Because it's purely a speculative asset for now, history might be the best guide. Investors could target the previous all-time high of $0.000088, which would be an increase of more than 12-fold from the current price.
But to reach even that point, the token will need to prove its utility or find some way to create value in order to entice investors to climb aboard the ship once again. Right now, the greater fool theory is the only thing keeping Shiba Inu from going to zero.
