The Shiba Inu (SHIB -1.72%) cryptocurrency was the talk of the financial world in 2021 for its record-setting annual return of 43,800,000%. It minted millionaires from investors who bought on Jan. 1 and held until Dec. 31, with a commitment of as little as $3.
But times have changed, and the irrational exuberance that fueled the meteoric rise of speculative assets last year appears to have abated. Thus, Shiba Inu investors are now grappling with a 70% loss in 2022 so far, and the token has dipped below $0.00001 twice in the past five months. That's the wrong direction for many pundits who anticipated it would reach $0.0001 or even $0.001 instead.
Should investors consider this to be a buying opportunity ahead of another blockbuster run, or has Shiba Inu lost its mojo for good? Let's explore the details.
Image source: Getty Images.
There's no escaping the use-case problem
Like most cryptocurrencies, Shiba Inu hasn't undergone mass adoption by consumers and just 659 businesses globally accept the token as payment. If people can't transact in Shiba Inu, there's little reason to own it aside from the idea that someone will come along and pay a higher price for the token later, an investing concept better known as the greater fool theory. In other words, plain speculation.
A lack of adoption leads to a domino effect because if people have no incentive to own Shiba Inu tokens, the pool of potential buyers will dry up over time, especially once speculators head for the exits. That means the price probably can head only in one direction: south.
As a result, the Shiba Inu community is working to create different use cases for the cryptocurrency. One is the metaverse, where investors can purchase virtual plots of land using the Ethereum (ETH -1.42%) cryptocurrency and then use Shiba Inu tokens to rename them. This also comes with a burn mechanism, which we'll explore later.
Another hotly anticipated initiative is the brand new Shiba Eternity mobile-based digital card game. While owning tokens isn't a requirement to play, the game's popularity could help to legitimize Shiba Inu and broaden its investor base. Remarkably, the game amassed 100,000 downloads in its first week after launching in early October.
Still, it hasn't helped the token's languishing price -- at least not yet.
Operation burn Shiba Inu
The burn mechanism mentioned earlier now makes up a critical part of Shiba Inu's future, and it could determine whether it can stage a meaningful recovery. The token is so cheap because of its enormous supply.
About 589 trillion Shiba Inu tokens now are circulating in the market. Simple math dictates that if the price rose to just $1 per token, Shiba Inu would have a total value of $589 trillion. At that point, the meme token would be worth more than the combined wealth of every individual, business, and government on Earth -- which stood at $530 trillion last year.
Therefore, the only legitimate path to $1 (or higher in general) for Shiba Inu is to reduce that crushing supply figure. Taking the metaverse example from earlier, all tokens used to rename virtual land plots will be burned -- or removed from supply forever. Shiba Inu's metaverse isn't up and running yet, but enthusiasts have been able to burn tokens in other ways, including by sending them to a dead wallet, buying products from the Shiba Coffee Company, and even streaming a specific playlist of music.
But the current burn rate is concerning. In the past 24 hours (as of this writing), just 23 million tokens have been burned. Back in July, investors would routinely burn 150 million or more per day, but even at that rate, it would take over 10,000 years to remove enough tokens to reach a price of $1.
The burn may not add any value anyway
While burning tokens result in an organic increase in price over time, it doesn't add any actual value. Shiba Inu's market capitalization -- currently $5.8 billion -- will theoretically remain exactly the same, just with fewer nominally more valuable tokens in circulation.
Therefore, even if 99.9998% of Shiba Inu tokens are burned and the cryptocurrency reaches a price of $1, the net value of investors will remain unchanged.
To be blunt, Shiba Inu may sustain a price above $0.00001 once again on pure speculation alone. But creating long-term value beyond that will depend on whether the community can create viable use cases, particularly as a payment mechanism. History shows that's unlikely, so investors shouldn't bet too enthusiastically on a recovery.
