The stock market has trended lower this year, but it's not quite as beaten up as the cryptocurrency market. In November 2021, the cumulative value of all crypto tokens in existence topped $2.9 trillion, but just a few months ago that figure hit a low of $860 billion.
A broad recovery appears to be in motion, with market leader Bitcoin (CRYPTO: BTC) now trading at $24,371, or about 38% off its 2022 low point.
But meme token Shiba Inu (SHIB 4.79%), which stole the limelight from other cryptocurrencies in 2021 with a whopping 43,800,000% return, has tripled from its 2022 low price of $0.000006 to trade at $0.000018 as of this writing. But is it on the way to many investors' long-term target of $1?
Cryptocurrency markets face heightened scrutiny
Concerns about the cryptocurrency industry have grown during 2022, which is one of the reasons for its broad decline in value. It's not just government regulators asking the hard questions anymore, but also consumers amid a handful of spectacular failures this year that have left catastrophic losses in their wake.
The collapse of popular stablecoin TerraUSD (CRYPTO: USTC) was one of the most notable, wiping out nearly all of its peak value of $18 billion. Then in July, decentralized cryptocurrency lender Celsius filed for bankruptcy owing its users approximately $4.7 billion. In the same month, Voyager went under after making loans to crypto hedge funds like Three Arrows, which failed partly because that entity lost a big bet on the TerraUSD stablecoin.
Now, U.S. government agencies appear to be taking a far more proactive approach to regulating the crypto industry. There is a wave of new rules set to come through to better protect consumers. Many crypto tokens will likely be classified as securities going forward, which subjects them to strict guidelines about how they are offered, sold, and traded. The exchanges and brokerage firms who deal in these tokens will also have to abide by new audit and compliance standards.
A token would be classified as a security if it passes the Howey Test, which dates back to a 1946 Supreme Court ruling defining investment contracts. Put simply, if investors pool their money into a project by purchasing shares, contracts, or in this case, tokens, with a clear expectation of making a profit, then it's likely that financial instrument is a security in the eyes of the law. It seems Shiba Inu would fit that bill, at least at face value.
Shiba Inu supply continues to burn
Beyond an overhaul of the regulatory framework around cryptocurrencies, Shiba Inu has a unique problem standing in the way of further stratospheric gains the likes of its 2021 performance. There are currently 589 trillion Shiba Inu tokens in circulation, which means if the price per token reached $1, it would make Shiba Inu the most valuable asset on Earth by a wide margin. In other words, that's never going to happen.
To clear a more realistic path to $1, the community is working together to burn tokens, which means to remove them from circulation forever. There are a handful of ways to do this, including participating in the new Shiba Inu metaverse where virtual landowners can attribute a unique name to their plots in exchange for a fee paid in Shiba Inu tokens -- all of which will be burned.
Enthusiasts can also assist by listening to a specific music playlist, or even by purchasing coffee from the Shiba Coffee Company, which burns some of its profits. But the simplest way to burn tokens is by sending them to a dead wallet, where they'll remain inaccessible forever.
But there's a catch...or two
The math behind the burn strategy is simple. If 90% of the 589 trillion Shiba Inu tokens in circulation are burned, then the price per token would organically rise tenfold (in theory). Therefore, to achieve a price of $1, roughly 99.9998% of tokens would have to be burned.
At the current daily burn rate, I've previously pointed out that it would take over 10,000 years to get there. But that's just one problem. The other catch is that if Shiba Inu reaches $1, it won't change the underlying value of each investors' position -- it simply means each investor will have 99.9998% fewer tokens, each worth $1, mathematically leaving them in the exact same position as before the mass burn.
There is only one way to actually make Shiba Inu more valuable, and that's to come up with use-cases for the token that will lead to widespread adoption among consumers and businesses. Right now, just 659 mostly obscure merchants accept Shiba Inu as payment worldwide, and that's not enough to move the needle.
Unfortunately, it looks like the dream scenario of $1 per token remains firmly out of reach for Shiba Inu investors at the moment.