Touted as the Dogecoin killer and riding the waves of the meme coin frenzy, Shiba Inu (SHIB -4.32%) is up an astounding 600,000% since its inception in 2020. Yet, over the last year, things have been less than ideal.
While the rest of the cryptocurrency market has rebounded from a brutal crypto winter, Shiba Inu finds itself down around 4% year to date (YTD). But does this mean it's an ideal opportunity to grab one of crypto's darling meme coins? Or should it be taken as a warning to avoid?
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Breaking down the bare-bones basics
While both fall into the meme coin category, Dogecoin and Shiba Inu have one fundamental difference. Dogecoin runs on its own blockchain, and Shiba Inu operates on the Ethereum (ETH -0.03%) blockchain.
This functionality can be a little confusing, but the critical aspect to understand is that by using Ethereum's blockchain, Shiba Inu inherits the smart contract functionality that has made Ethereum one of the most innovative blockchains. As a result, Shiba Inu can interact with smart contracts, the backbone of decentralized applications, and open the door for developers to create new crypto-based use cases.
Advocates of Shiba Inu point to this functionality as one of the key reasons the token has long-term potential. With SHIB, users can buy non-fungible tokens, participate in decentralized autonomous organizations (DAOs) (although this effort is currently on hold), swap other dog-inspired tokens like BONE and LEASH, and eventually interact in the planned SHIB Metaverse, which will be partially launched by the end of the year. As a result, the Shiba Inu ecosystem has grown considerably in just the last couple of years.
Barking up the wrong tree
The development and progress made in the SHIB ecosystem is undoubtedly admirable. But, to be blunt, it doesn't amount to much of anything. Explaining why this is the case is related to several varying factors.
Most apparent would be Shiba Inu's enormous supply. As it currently stands, there are 589 trillion tokens in circulation. It doesn't take an economic degree to see how this elevated supply can be problematic.
Basic economic theory tells us that if the demand outpaces supply, the price of an asset should increase over time. This is precisely what has happened with Bitcoin (BTC -1.91%). Its fixed-supply cap of 21 million has been met with considerable demand from the investment community, causing its price to soar. Unfortunately, this isn't the case with Shiba Inu, likely due to its intentional design to prioritize abundance over scarcity.
Good dog?
The allure of buying one of the more popular meme coins and potentially striking gold is a real challenge investors must combat. However, there are simply too many headwinds forming that will prove problematic for Shiba Inu in the long term. Most evident is its lack of crucial fundamentals that more prominent counterparts boast.
And it seems like the broader market is realizing this. While the total crypto market cap has risen by over 90% YTD, Shiba Inu has been left behind. As previously mentioned, it has lost around 4% of its value since the beginning of the year.
This is particularly telling and problematic because in crypto, liquidity usually trickles down from blue chip assets like Bitcoin and Ethereum and then flows into tokens with smaller market caps, regardless of whether they provide actual utility and value. Since Shiba Inu hasn't benefited from any liquidity surplus, it might be safe to say this dog has seen its last day. For investors looking to build up their crypto portfolios, it is best to stick with more proven assets with solid fundamentals and true long-term potential.
