While stock market investors saw huge gains in 2021, those who had money allocated to the cryptocurrency market saw even better performance. And to be more specific, Shiba Inu (SHIB -4.16%) token holders saw monster gains that year.
Now, with the dog-themed digital asset sitting 92% below its peak price, some investors might be looking to buy it at a huge discount, with the hope that it can soar in value once again.
That sounds like a good plan, but Shiba Inu is one cryptocurrency you want to avoid no matter what. Here's why.
Try to find a competitive edge
Trying to build off the success of its dog-inspired crypto predecessor, Dogecoin, Shiba Inu was built to be compatible with Ethereum. And this adds greater accessibility and functionality to the entire Ethereum ecosystem, opening Shiba Inu to work with the vast number of exchanges and other service providers.
Moreover, this means that Shiba Inu can run smart contracts. In theory, this feature could drive greater development of decentralized applications (dApps), which have the potential to increase demand for and usage of the token.
This strategy sounds smart on the surface, but it's hard to get excited about Shiba Inu in light of other, more prominent cryptocurrencies out there. Take Ethereum: It has the most developers working on it than any other blockchain network, and it has more than 3,000 dApps built on top of it. Additionally, Ethereum's $189 billion market cap creates huge network effects that Shiba Inu just can't compete with.
And besides Ethereum, both Cardano and Solana might be more promising than Shiba Inu. Both of these blockchains have unique properties that help them stand out.
The takeaway is that Shiba Inu has essentially no competitive edge. And this means that it doesn't deserve your hard-earned capital.
Think it through
I can certainly see why some investors, particularly those who are much more tolerant of risk, might want to take a chance and buy Shiba Inu, at least a tiny amount. If this digital asset can start climbing back toward its all-time high set in late 2021, then the gains could be absolutely enormous.
But I view this as pure speculation. Hoping something soars in value with a wing and a prayer goes against sound investment principles. It's necessary to think things through.
Right now, Shiba Inu carries a market cap of about $4 billion. This makes it the 19th most valuable cryptocurrency network in the world. That's impressive, to be fair.
However, can investors make a valid argument that Shiba Inu, which can be used for payment at only a few hundred merchants, deserves a higher market cap than a business like Peloton Interactive, for example? Despite its struggles, the exercise bike maker has millions of customers and sells real products and services that users find valuable. I don't think people can say the same thing about Shiba Inu.
Or look at a company like Lyft. The ride-hailing service has a market cap of $4 billion today. In the second quarter, it generated $1 billion in revenue and counted nearly 22 million quarterly active customers. Is it reasonable that Shiba Inu is just as valuable as this business? Again, I think the answer is a resounding no.
Cryptocurrencies might get a valuation premium because they have huge potential, and they benefit from a strong community of supporters. But investors need to ask these types of practical questions that point to Shiba Inu's true value proposition. If there's a very high probability that its price goes to zero one day, it's probably best to avoid this cryptocurrency.
