Even by cryptocurrency standards, Shiba Inu (SHIB +0.88%) delivered unbelievable returns to early buyers. In 2021, the meme coin's price increased by over 40,000,000%. If you had bought just $3 worth of SHIB tokens at the beginning of the year, you could've turned them into over $1 million.
Shiba Inu currently has a market cap of $4 billion, making it the second-biggest meme coin behind Dogecoin. Although it's still a popular cryptocurrency, I'd never buy it for a few important reasons.
Image source: Getty Images.
1. Shiba Inu is more of a joke than an investment
From the beginning, Shiba Inu has been about hype and not any fundamental value. The name was clearly a way to capitalize on the success of Dogecoin -- the Shiba Inu team even referred to it as the "Dogecoin killer." Its anonymous founder, Ryoshi, also sent half of the entire SHIB token supply to the crypto wallet of Vitalik Buterin, co-founder of Ethereum. Buterin burned 90% of those tokens and donated the rest.
Ryoshi's explanation for this decision: "There is no greatness without a vulnerable point and as long as [Buterin] doesn't rug us, then SHIBA will grow and survive." In my view, the more likely explanation is that it was a publicity stunt intended to garner attention.
I wouldn't invest in a company that doesn't take itself seriously, or that decides to send half of its shares to, say, Elon Musk on a whim. I've avoided Shiba Inu and other meme coins for the same reason.
2. Profiting on meme coins is too complicated
My investing approach is to buy and hold companies and cryptocurrencies that I believe have growth potential. I prefer to avoid selling whenever possible and instead let my portfolio (hopefully) continue to grow.
That approach doesn't work with meme coins like Shiba Inu. Their peaks tend to be short-lived, which puts you in a difficult position. You need to monitor prices constantly so you don't miss out if your tokens increase in value. If you have the chance to sell at a profit, you also need to decide whether to take it or wait to see if the price increases further.
3. Shiba Inu's best days appear to be behind it
Since peaking at $0.00008616 on Oct. 28, 2021, Shiba Inu has lost over 90% of its value. There have been a few much smaller spikes since then, but anyone who bought near the peak in 2021 is looking at a sizable loss.
This is a common pattern with meme coins, which is why I prefer cryptocurrencies with a genuine use case. Take Bitcoin (BTC 0.82%), for example. Because it has a limited maximum supply of just 21 million coins, there's built-in scarcity, which makes it popular as a digital store of value. If you look at Bitcoin's price chart, you'll see that it has consistently recovered from bear markets and reached new highs.
CRYPTO: BTC
Key Data Points
Shiba Inu hasn't demonstrated a unique use case or any legitimate source of value. I see no reason it will be worth more in the future than it is today.
