Shiba Inu (SHIB 4.25%) is a quintessential meme cryptocurrency -- it earned that reputation not for its utility as a currency, but for the speculation that drove it to a historic 43,800,000% return during 2021. Investors with perfect timing would have become millionaires for the cost of a cup of coffee. 

But what followed in 2022 was the polar opposite, with the token nursing a year-to-date decline of 76%. This story isn't entirely unique to Shiba Inu, though, because the entire cryptocurrency industry is in a deep freeze right now, with its total value of $810 billion far below its all-time high of $2.9 trillion set last year.

Nonetheless, Shiba Inu does face many of its own challenges. With that said, where might its price head in 2023?

Shiba Inu's positive catalysts continue to fizzle

The main reason Shiba Inu hasn't been able to shake its reputation as a speculative vehicle is because its real-world use cases are so limited. But to the community's credit, there is constant work going on behind the scenes to change that, and some of it is quite innovative (though it doesn't guarantee any benefit).

In the last couple of weeks, Shiba Inu investors were excited for the potential release of Shibarium, its highly anticipated Layer-2 blockchain solution. Shiba Inu is built on the legacy Ethereum blockchain, which is clunky and makes transacting relatively expensive, so Shibarium is designed to reduce friction and better position Shiba Inu for new opportunities as a payment mechanism, for example. 

Unfortunately, and despite some hints that this release was imminent, it hasn't happened yet.

In another example, the Shiba Eternity digital card game was launched back in October, and it was an immediate hit. But enthusiasm has seemingly evaporated, and it has tumbled down the gaming category rankings in places like the Apple App Store. Shiba Eternity was designed to eventually run on a blockchain to include real non-fungible tokens (NFTs) and Shiba Inu tokens fused with the gameplay. So far, those capabilities haven't materialized. 

But even if an initiative like Shibarium comes to fruition, it's unlikely to lead to mass adoption among consumers, which is what the Shiba Inu token needs to sustain long-term gains. A mere 659 businesses worldwide accept the token as payment for goods and services, and that just isn't enough to move the needle. 

Shiba Inu could be hurt by wider crypto sentiment

Sentiment is overwhelmingly negative right now. Prosecutors in the U.S. just started laying charges on some of the leadership team at cryptocurrency exchange FTX, which collapsed in November and owes its 1 million creditors (mostly customers) an estimated $3 billion.

Unfortunately, investors are learning the hard way that when things go wrong in the cryptocurrency world, there often isn't any insurance or recourse that can help them recover their losses. FTX is just the latest in a string of catastrophes for the industry in 2022 -- it follows the de-pegging of the TerraUSD stablecoin, which wiped out an estimated $60 billion in value, and the collapse of Three Arrows Capital, a hedge fund that went under with $3.5 billion in unpaid debt. 

With investors' confidence in crypto sinking, it stands to reason that tokens like Shiba Inu will remain among the hardest hit because of their speculative nature. If investors don't feel Shiba Inu is destined to move higher, then it probably won't. 

A sad Shiba Inu puppy sitting inside a cage.

Image source: Getty Images.

Here's where Shiba Inu might go in 2023

Shiba Inu suffers from one unique problem: an enormous supply of tokens. There are more than 589 trillion in circulation right now, which is why its price per token sits behind so many decimal places, trading at $0.000008 as of this writing.

The community is trying to "burn" some of that supply, which means to permanently remove tokens from circulation, because that would (theoretically) increase its price in proportion. This is done in a few ways including by sending tokens to a dead wallet, buying coffee from the Shiba Coffee Co., streaming a specific music playlist, and even participating in the community's upcoming metaverse project.

But there's a problem. In the last 24 hours, just 10.9 million tokens have been burned. If that rate continues throughout 2023, just 4 billion will be removed from circulation by the end of the year. In other words, just 0.000007% of outstanding supply, which won't do anything for Shiba Inu's price.

Combined with the fact that investors' sentiment toward the cryptocurrency industry is unlikely to improve much in the new year, the risk is to the downside for Shiba Inu tokens.