If I could only use one word to describe the cryptocurrency market, it would be "volatile." Most investors already know this.
But some individual cryptos have been on wilder rides than others.
Look at Shiba Inu (SHIB 3.72%). Its price climbed to astronomical levels in 2021, only to come crashing back down. It's currently 91% below its peak price.
Nonetheless, this has still been a very successful investment. If you were bold enough to invest $10,000 in Shiba Inu around the time of its launch in August 2020, you'd be sitting on more than $1 billion right now. This translates to a remarkable 10,200,000% rate of return. The Nasdaq Composite index has risen by 22% during the same period.
Let's unpack this meme token's history, then figure out if it's a good idea to invest today.
Hype and speculation
Shiba Inu's public launch couldn't have been better timed. The pandemic recovery in markets had begun, and traders and investors had the cash and the time to bet on various assets.
But things really took off the following year.
In 2021, a top story in the stock market was the rise of meme stocks, like AMC Entertainment and GameStop. This investor enthusiasm spilled over into the crypto world. And more specifically, it catapulted Shiba Inu that year.
With 589 trillion tokens currently in circulation and no adoption in terms of real-world utility, this digital asset's price now reflects nothing more than the amount of support it receives from its avid community of followers.
Even more alarming, while the overall cryptocurrency market has rallied in 2023, Shiba Inu's price has remained little changed. Interest is waning.
CRYPTO: SHIB
Key Data Points
Fundamentals matter
To say that the past year-and-a-half or so has been a wake-up call for the cryptocurrency industry would probably be an understatement. Numerous companies in the industry failed, with high-profile figures facing criminal charges and fines. Trust is scarce.
Add to this shakeout tighter macro conditions, the result of higher interest rates, and it's not hard to believe that investors might be more risk-averse these days. Putting money into meme tokens purely for speculative reasons to ride the hype wave can no longer be viewed as a sound investment strategy.
So how do things change for investors? I believe that fundamentals will matter most in the years ahead.
In Shiba Inu's case, investors need to start asking what value this blockchain network actually provides or what problem it solves. I think these answers are hard to come by.
To frame things another way, imagine if Shiba Inu vanished. I suspect that this would cause no harm to the daily lives of most people. You can say the same thing about the vast majority of cryptocurrencies out there.
Some crypto bulls might quickly point to the promise of decentralized applications for finance or gaming protocols, and even non-fungible tokens. But Shiba Inu doesn't hold a candle to a network like Ethereum, which is the dominant blockchain that utilizes smart contracts.
According to a report from Electric Capital, a venture investment firm, Shiba Inu doesn't even crack the list of top 100 blockchains when it comes to developer activity. How does the network plan to introduce new updates and test new features, which are essential to drawing in more users, if it can't even attract developers?
Viewing Shiba Inu through a fundamentals-based approach, the best thing to do is avoid this token. Its past returns were impressive, but the future doesn't look promising.
