In 2021, meme coins such as Dogecoin (DOGE +0.97%) and Shiba Inu (SHIB +1.34%) were all the rage. They enticed individual investors with a very simple promise: Invest just a few bucks to acquire thousands of crypto tokens, and you could potentially become a millionaire overnight. Featuring cute little dog mascots, these meme coins seemed like the ultimate way to become rich and have a good laugh at the same time.
But fast forward to 2023, and investor enthusiasm for meme coins has cooled considerably. At a time when Bitcoin (BTC 0.91%) is up 155% for the year, Shiba Inu is up a mere 15%. At the unbelievably low price of $0.000009 Shiba Inu is now trading nearly 90% below its all-time high from October 2021. So is there any possible reason why you should buy Shiba Inu while it's still down?
Burn, baby, burn
By now, just about everybody realizes that Shiba Inu has too many coins in circulation. And that has led to new initiatives by the Shiba Inu community to "burn" as many of these coins as possible by sending them to dead crypto wallets. The more coins the community can burn, the more the coin supply declines. Burn enough coins, and you might be able to see a bump in price. That's just simple supply and demand at work.
Image source: Getty Images.
So, if you track the Shiba Inu burn rate (which is available publicly to anyone on the internet), there's room for optimism. During a single 24-hour period in early December, the community was able to burn more than 8 billion coins. That's a lot. By way of comparison, the entire lifetime supply of Bitcoin is capped at 21 million coins. Just keep in mind: 8 billion coins is a statistical outlier. On most days, the burn rate is measured in the millions, not the billions.
The good news is that, if all goes according to plan, the burn rate should increase over time. In August, Shiba Inu launched a blockchain scaling solution called Shibarium that helps the main Shiba Inu blockchain run faster and more efficiently. One of the most interesting features of Shibarium is a burn mechanism that burns a percentage of all transaction fees. Thus, the more transaction activity that takes place on Shibarium, the higher the level of transaction fees will be, and the more Shiba Inu that gets burned. It's a classic case of "the more you earn, the more you burn."
The problem, though, is that the current circulating supply of Shiba Inu (589 trillion coins) is so overwhelmingly large that it is almost mathematically impossible to bring it down to a manageable number. Even if you burn 8 billion coins a day for 365 days straight, that's still only 3 trillion coins removed from circulation, leaving you with 586 trillion coins after one year. You would still need nearly 200 more years to bring the coin supply down to 1 trillion coins, so the task is seemingly insurmountable during our lifetime.
Shiba Inu vs. Bitcoin
There's one other way that Shiba Inu might increase significantly in value, and that's if investors decide to scale back their buying of Bitcoin. This might sound highly improbable, but hear me out. Right now, there's so much money moving into Bitcoin that there is no extra money to allocate to other cryptocurrencies such as Shiba Inu.
CRYPTO: SHIB
Key Data Points
At some point, though, investors will decide that they can earn higher returns by moving their money into high-risk altcoins (basically, any coin that's not Bitcoin). And when that happens, they will be more willing to allocate money to speculative meme coins. In turn, that should help to push up the price of Shiba Inu. This is a dynamic that has occurred so many times in the history of the crypto market that it even has a name: altcoin season.
Buy, sell, or hold?
Maybe I'm barking up the wrong tree, but it's hard for me to envision any realistic scenario for Shiba Inu to increase rapidly in price. In one scenario, you need to rely on mathematically improbable coin-burning initiatives to reduce the supply of Shiba Inu to a manageable level. In the other scenario, you need to root against Bitcoin during a major market rally and hope that investors will rediscover their love for dog-themed meme coins.
Thus, even at a 90% discount to its all-time high, Shiba Inu is probably overvalued. At its current price, Shiba Inu is mathematically more likely to go to zero than $1. Meme coins were fun while they lasted, but it's time now to move on to more serious investments.
