A frenzy swept the financial markets during 2020 and 2021, as global governments poured trillions of dollars' worth of stimulus into their economies to counteract the effects of the COVID-19 pandemic. Interest rates also plummeted to historic lows, which forced investors to take more risks in the hunt for a return on their money, and it led to wild swings in everything from stocks to cryptocurrencies.
Shiba Inu (SHIB 1.03%) made a name for itself in 2021 because it ended the year with an eye-popping gain of 45,278,000%, which would have been enough to turn a perfectly timed investment of $3 into $1 million. It was one of the best annual returns in the history of the financial markets, and since the meme token has no utility in the real world, it was driven entirely by speculation.
Unfortunately, speculative frenzies never last, and Shiba Inu has since plunged by 85% from its record high. But positive sentiment is creeping back into the crypto markets this year, so should investors buy the dip, or run for the hills?
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Shiba Inu's upside catalysts are limited
Shiba Inu's main problem is a lack of adoption. For a cryptocurrency to rise over the long term, it must be considered as a legitimate store of value among investors (like Bitcoin), or it needs a true use case to drive demand.
Since Shiba Inu is down 85% from its record high, investors clearly have little faith in its ability to hold value. And according to crypto directory Cryptwerk, just 1,072 businesses accept it as payment for goods and services in the entire world, and if consumers can't spend the token at their favorite stores, they have no reason to own it.
Shiba Inu developers launched a Layer-2 blockchain solution called Shibarium in 2023, which eliminated some of the clunkiness and costs from the legacy Ethereum network upon which the meme token is built. The goal was to make Shiba Inu more attractive as a transaction mechanism, but it did little to increase adoption or lift the token's price.
It isn't the first time developers have tried to light a spark under Shiba Inu with innovation. They launched a digital card game called Shiba Eternity in 2022 to draw attention to the meme token, and they even started building a metaverse where tokens can be used to customize digital plots of land. The metaverse launched an early access program at the end of 2024 after years of development, but there are no signs to suggest it will move the needle.
President Donald Trump is leading one of the most pro-crypto governments in U.S. history, but it hasn't been enough to lift Shiba Inu out of its slump, despite sending other cryptocurrencies like Bitcoin to new highs. The president established a digital asset stockpile earlier this year, where the government will store cryptocurrencies it has seized from criminals. He even appointed a heavily pro-crypto chairman to run the Securities and Exchange Commission (SEC), who might reduce red tape to pave the way for new use cases for tokens like Shiba Inu.
Shiba Inu faces a persistent supply issue
A lack of adoption isn't Shiba Inu's only headwind, because a significant supply problem might also stand in the way of another historic rally. There are 589.2 trillion tokens in circulation, so at the current price per token of $0.0000127, Shiba Inu has a market capitalization of $7.3 billion.
Simple math dictates that if the price per token were to reach a more traditional level like $1, then Shiba Inu's market capitalization would be $589.2 trillion. In other words, it would be worth more than all of the wealth of every person, business, and government in the world, which stood at $454 trillion at the end of 2022, according to UBS.
Many Shiba Inu community members have tried to rectify the supply issue by "burning" their tokens, which removes them from supply forever. The easiest way to participate is by sending tokens to a dead wallet where they can never be retrieved. In theory, the price per token should rise in proportion to the number of tokens burned, so it could be a legitimate path toward $1 for Shiba Inu.
It might be time for investors to run for the hills
While burning Shiba Inu tokens could lead to higher prices in the future, it doesn't actually create any value. If every investor participated, any price increase would be offset by their reduced holdings. In other words, their net position in terms of value would be exactly the same as it was before.
In order to create sustainable value over the long term, Shiba Inu will have to find a true use case to entice consumers, businesses, or investors to buy tokens. There has been very little progress on that front in the five years since the meme token was created, and there is nothing in the development pipeline right now that looks capable of changing that.
As a result, the path of least resistance is probably to the downside for Shiba Inu, so investors might want to avoid it at all costs.
