As part of a broader strategy based around utility and real-world use cases, Shiba Inu (SHIB -1.91%) finally launched Shibarium, a much-anticipated blockchain scaling solution that will make Shiba Inu faster and cheaper to use. Over time, the thinking goes, Shibarium will eventually facilitate the evolution of Shiba Inu from a dog-themed meme coin into a utility coin with real value.
But I'm not convinced that the introduction of Shibarium will have much of an impact on the future valuation of Shiba Inu. Just a week after the launch of Shibarium, investors seem to agree. Over the past seven days, the price of Shiba Inu is down about 7%.
Transforming a pure meme coin into a utility coin with real-world uses is a lot harder than many people think. Here's why.
Image source: Getty Images.
Limitations of Shibarium
To understand why Shibarium has attracted so much attention, it is first important to understand the difference between crypto tokens and coins. While Shiba Inu is often referred to as a "meme coin," it is technically a "meme token." This means that it does not have a blockchain of its own and must rely on another blockchain for its functionality, security, and stability. For Shiba Inu, this blockchain is Ethereum (ETH -1.56%).
Thus, Shibarium is really just an incremental improvement on what Ethereum already offers. It is a Layer 2 scaling solution that is designed to sit on top of the main Ethereum blockchain and make it faster and cheaper to use. But it does not directly introduce any new functionality into what is already possible with Shiba Inu.
Moreover, the launch of Shibarium is just a "public beta" launch, meaning that it is still in test mode. Thus, we may not see any real performance improvements for a long time. That's especially troubling, given that the launch of Shibarium has been promised since May 2021.
While some media outlets are comparing Shibarium to other Layer 2 scaling solutions for Ethereum, such as Polygon, I don't think this comparison really stands up to scrutiny. The best Layer 2 solutions boast truly cutting-edge technology, but I don't see any mention of similar technologies on the official Shibarium network page. All I see is a reference to Puppynet (the code name for the Shibarium network) and pictures of cute cartoon dogs.
Supply and demand for Shiba Inu
But let's give Shiba Inu the benefit of the doubt here, and assume that Shibarium really is a high-performance, cutting-edge scaling solution, and that it will make Shiba Inu faster, cheaper, and easier to use. Further, let's suppose that developers will begin to build decentralized apps for Shiba Inu, that businesses will begin to integrate Shiba Inu into their technology stacks, and that the much-hyped Shiba Inu metaverse project will eventually blossom into a popular online destination.
There's still the matter of Shiba Inu's circulating coin supply. When Shiba Inu launched back in 2020, it did so with 1 quadrillion coins. The current coin supply still stands at a mind-boggling 549 trillion coins. By way of comparison, the total lifetime capped supply of Bitcoin is just 21 million coins.
Thus, right now, the total coin supply of Shiba Inu is approximately 25 million times larger than the total lifetime supply of Bitcoin. Who's going to buy all these coins?
If you're wondering why Shiba Inu still trades for only $0.00001, it's because there's way too much supply and not enough demand. While Shibarium will theoretically burn Shiba Inu tokens with every single transaction carried out on the blockchain, it still won't happen quickly enough to matter. When it comes to the overall burn rate of Shiba Inu, Shibarium most likely is not going to move the needle.
Should you buy Shiba Inu?
This means, of course, that there's no way the value of Shiba Inu is going to skyrocket to $1. That's wishful thinking, and is not rooted in any kind of mathematics.
A $1 price tag for Shiba Inu would imply a market cap of $549 trillion. By comparison, the total market cap of the S&P 500 at the end of 2022 was approximately $32 trillion. Is Shiba Inu really 17 times more valuable than the 500 largest publicly traded corporations combined?
While I certainly applaud Shiba Inu's developers for doing everything they can to increase the value of the token for crypto investors, I don't think you can teach an old dog new tricks -- once a meme coin, always a meme coin. For that reason, I can't recommend Shiba Inu as a long-term investment for your crypto portfolio.
