If you think it's been a rough year for the stock market, take a gander at the volatility cryptocurrency investors have endured. Since the aggregate valuation of more than 20,000 digital currencies peaked at $3 trillion approximately 13 months ago, the total value of all cryptocurrencies has plunged more than 70% to $853 billion, as of late evening on Dec. 1.
However, big pullbacks have been par for the course in the crypto space for a decade, and they've previously paved the way for jaw-dropping bull markets. Perhaps no digital currency demonstrates this more than meme coin Shiba Inu (SHIB 1.59%).
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Shiba Inu delivered historic gains in 2021
When Shiba Inu made its debut in August 2020, it was just another obscure coin in a sea of digital currencies. By the beginning of 2021, it had lost a significant portion of its value. Then everything changed.
Investors with the luck, foresight, and stomach to buy SHIB tokens at the stroke of midnight on Jan. 1, 2021, would have secured a purchase price of $0.000000000073. By Oct. 27, 2021, these same tokens had skyrocketed to $0.00008841. It might be difficult to do the math given all the zeroes after the decimal point, but in a span of less than 10 full months, Shiba Inu returned better than 121,000,000%, at its peak.
Even after a two-month retracement to end 2021, Shiba Inu closed out the year with a roughly 46,000,000% gain. Not only did this firmly put Shiba Inu on the map in the eyes of cryptocurrency investors, but it cemented it in the record books as having perhaps the greatest single-year gain for an asset in history.
It also serves as a reminder that anything can happen in the crypto space. So much so that it has investors wondering if Shiba Inu can deliver an encore performance and hit $1 in 2023.
Here's what would need to happen for Shiba Inu to hit $1 in 2023
In order for SHIB tokens to reach parity with the U.S. dollar, they'd have to moonshot more than 10,800,000% from where they were trading last week. For such a monumental gain to take place, five things would need to (flawlessly) occur.
The most important thing for SHIB is the upcoming public launch of Shibarium, a Layer 2 blockchain designed to significantly lower transaction fees. Shiba Inu is an ERC-20 token built on the Ethereum blockchain. While Ethereum is a highly trusted network, its popularity has a tendency to bog down processing times and bloat transaction fees. Shibarium is critical to substantially lowering these fees in order to support the project's blockchain-based gaming ambitions.
Second, but building on the previous point, is the eventual launch of non-fungible token (NFT)-driven games. A key component of blockchain-based games is the ability for people to own their creations, as well as buy or sell NFTs on marketplaces. These marketplace transactions could be prohibitively expensive until Shibarium is launched and transaction fees are substantially reduced.
Third, Shiba Inu will need to see a sizable uptick in merchant acceptance. Even though developers are almost exclusively focused on the eventual launch of Shibarium and the potential for SHIB within the metaverse, it's imperative that Shiba Inu gain real-world utility to put a floor beneath its token price. Gaining acceptance by well-known retailers would be a necessity if SHIB is going to skyrocket to $1.
Fourth, there would need to be a significant amount of coin burn to reduce what's estimated to be around 549 trillion outstanding tokens, according to CoinMarketCap. Ethereum founder Vitalik Buterin sent more than 410 trillion SHIB to a dead blockchain address in 2021 and drastically reduced the circulating supply (originally 1 quadrillion). A similar amount of coin burn would almost certainly be needed to move the needle in 2023.
Fifth and finally, Shiba Inu would need a historic amount of support and buzz on social media message boards to moonshot more than 10,800,000% in 2023. According to Etherscan, there are more than 1.25 million wallets holding SHIB coins, and the vast majority of these people would need to be active on social media to drum up support for an asset that's demonstrated how powerful the fear of missing out (FOMO) can be.
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SHIB is all bark and no bite
But to address the original question at hand of whether Shiba Inu can reach $1 in 2023, the answer is effectively no. While these five catalysts above sound great on paper, a number of headwinds prevent any chance of SHIB nearing $1 in 2023.
As I've pointed out previously, the biggest knock against Shiba Inu is that it completely lacks competitive advantages and differentiation. Although FOMO propelled SHIB tokens in 2021, Shiba Inu is ultimately nothing more than a payment coin. There are thousands of crypto tokens that could, in theory, be used as a form of payment. Without any true standout qualities, it's going to be difficult for SHIB to maintain its existing market value, let alone add more than 10,800,000% in a year.
To add to the above, SHIB has demonstrated that it's not a particularly popular payment coin. Online services marketplace Cryptwerk shows that only 659 mostly obscure online merchants were accepting SHIB tokens as a form of payment when December began. This figure has been unchanged for the past six months, signifying that SHIB's volatility has been a turnoff for retailers.
Another red flag for Shiba Inu can be found in its ownership statistics. FOMO is critical to pushing digital currency valuations higher. However, data from Etherscan shows that the number of unique wallets holding SHIB tokens has declined from 1.28 million to 1.25 million since just prior to Thanksgiving. At no point during its 2021 monster run did ownership in SHIB decline.
SHIB hitting $1 also makes absolutely no fundamental sense. Even though traditional valuation metrics are usually thrown out the window with cryptocurrencies, parity with the U.S. dollar would give Shiba Inu a market value of $549 trillion, or more than 5 times global gross domestic product of $96.3 trillion in 2021. That would be a pretty silly valuation for a token with little utility and no differentiation.
Finally, history has proved unkind to payment coins that deliver historic short-term gains. Previously, payment tokens that gained 20,000% or more in a short time frame eventually went on to lose 93% to 99% or more of their value. Even though SHIB is already down approximately 90% from its all-time high, history would suggest there's a long runway to the downside still to come following a peak gain of 121,000,000%.
