In 2021, the Shiba Inu (SHIB 1.48%) token delivered a return of 43,800,000%, which remains one of the most incredible gains in the history of finance. For perspective, Shiba Inu would have turned a perfectly timed investment of just $3 into more than $1 million!
But the token has plunged in value by 92% from its all-time high, leaving many late-coming investors nursing substantial losses. Several factors have contributed to the decline, including negative sentiment toward the cryptocurrency industry as a whole and Shiba Inu's own failure to garner widespread adoption.
So is Shiba Inu down for the count, or could it return to deliver another blockbuster gain for investors? There is one way the community could manufacture a spectacular run from the token's current price of $0.000007 all the way to $1, but the result might not be what investors expect. I'll explain below.
Image source: Getty Images.
Investors have soured on the cryptocurrency industry
The value of all cryptocurrencies in existence reached $2.8 trillion in 2021, but that number has since declined by 62% to just $1 trillion as of this writing. Most tokens have lost more than half of their value, including Bitcoin, the leader in the crypto market.
Investors initially flocked to cryptocurrencies because they offered a decentralized alternative to traditional money by sitting outside the scope of governments and regulators. But there's a downside to that feature, because when a cascade of failures struck the industry throughout 2022, investors found themselves sitting on catastrophic losses. The collapse of the TerraUSD stablecoin wiped out an estimated $60 billion, and the failed FTX crypto exchange still owes customers about $3 billion amid allegations of fraud.
In contrast, when a series of U.S. regional banks failed earlier this year, all customer deposits were protected by the Federal Deposit Insurance Corporation (FDIC) in partnership with the government. Regulation certainly doesn't look so bad when you view both situations.
Broader sentiment aside, Shiba Inu has also suffered from its own problems. The token's incredible gain in 2021 was driven by speculators, and despite all the attention it was receiving, consumers and businesses were still unwilling to adopt it as a currency. In fact, just 781 merchants accept Shiba Inu as payment worldwide today.
Shiba Inu needs to clear a mathematical hurdle to make further gains
As of this writing, there are 589 trillion Shiba Inu tokens in circulation, and at a price of $0.000007 each, the ecosystem has a market capitalization of around $4.2 billion. If Shiba Inu rose to $1, simple math suggests the ecosystem would have a value of $589 trillion.
Considering all the known wealth held by each individual, business, and government on Earth stood at $463 trillion in 2022, it's absolutely impossible for Shiba Inu to achieve a price of $1 in its current state. The only way it can get there is if the supply of tokens is dramatically reduced.
The Shiba Inu community is aware of that challenge, so it has encouraged investors to "burn" tokens, which removes them from circulation forever. They can do so by sending tokens to a dead wallet where they can't be recovered, but enthusiasts can also:
- Buy products from the Shiba Coffee Company;
- Stream a specific music playlist; and
- Use the Shiba Search internet search engine.
The financial proceeds from all those activities are used to burn tokens. In theory, the Shiba Inu community will have to eliminate around 99.99998% of all existing tokens in circulation and bring supply down to 4.2 billion tokens.
That could take a mind-boggling amount of time
There have been 1.8 billion Shiba Inu tokens burned in the past 30 days, which translates to a pace of around 21.6 billion tokens per year. Considering that almost all 589 trillion tokens need to be removed from circulation for the price to settle at $1 per coin, it would take a whopping 27,006 years to achieve that goal at the current pace.
But that isn't the only problem. Once supply is whittled down to just 4.2 billion tokens and the price per token (theoretically) stays at $1, the total value of the Shiba Inu ecosystem will still be $4.2 billion! That means investors will have earned zero gains, despite an incredible rise in the price of each Shiba Inu token.
Therefore, while it is technically possible for Shiba Inu to reach $1 thousands of years from now, it won't actually translate to an increase in value. Talk about an exercise in futility!
