Here's Why Shiba Inu Is Down 25% in Two Weeks

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KEY POINTS

  • Shiba Inu has dropped 25% in two weeks, but it's still up 17% in the past month.
  • It's early days for the Shiba Inu metaverse, and questions remain about SHIB's utility.


Here are some of the reasons for SHIB's 25% price drop.

Shiba Inu's (SHIB) price has fallen 25% in the past fortnight, according to CoinGecko data. Given that the whole crypto market has slumped again in recent weeks, this drop isn't so surprising. But Shiba Inu has fallen a lot farther than market leader Bitcoin (BTC), which is down 15% in the same time period.

Here are some of the reasons for SHIB's 25% price drop.

1. Shiba Inu had further to fall

Let's zoom out slightly and look at Shiba Inu's price performance over the past month. Its price is actually up around 17% in the past 30 days (compared to Bitcoin, which is only up 5%). This is because SHIB jumped over 45% at the start of February on news of its metaverse plans.

Since then, uncertainty over the developing Russia-Ukraine crisis has hit the whole crypto industry. Given that Shiba Inu's price had already gained more than most other cryptocurrencies, it was likely to see higher percentage losses as well.

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2. Shiba Inu still needs to build its metaverse

In early February, Shiba Inu announced plans to enter the metaverse -- currently code-named Shiberse. Its first step in developing the Shiberse will be to auction land, and according to its blog, LEASH-holders (LEASH is a Shib-related token) will get exclusive access to the first phase of sales.

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The problem is that it is likely to take Shiba Inu a long time to build this new virtual world. First it needs to finish Shibarium, its own layer 2 solution that aims to reduce Ethereum (ETH) gas fees (layer 2 solutions sit on top of existing blockchains to improve performance). Then it needs to build its metaverse, which likely won't be finished until 2023.

The metaverse space is evolving every day. By this time next year, non-crypto players like Facebook and Microsoft may have launched their own virtual worlds. Existing players like Decentraland (LAND) and Sandbox (SAND) will almost certainly have solidified their offerings. And other projects will have emerged -- there are already some incredible metaverse projects in the pipeline.

3. Meme tokens struggle more in market slumps

Members of the ShibArmy may take offense at the idea that Shiba Inu is a meme token. The crypto does, after all, have its own decentralized exchange (DEX) called ShibaSwap, and it's building its own metaverse. But so far, most of what you can do on ShibaSwap is earn SHIB-related tokens such as BONE and LEASH. There's little to set it apart from established DEXs like Uniswap. There's some substance behind Shiba Inu, just not very much.

When the market slumps, it's cryptos with less utility and less established reputations that are hardest hit. Part of the reason for the recent crypto crash is that economic uncertainty has driven people out of riskier assets like cryptocurrency. And meme tokens are risky even by crypto standards.

Shiba Inu still raises red flags

Shiba Inu does have slightly more utility than other meme tokens. Unfortunately, that doesn't make it a good investment. Here are just a few red flags to watch:

  • Anonymous founder. Shiba Inu has an anonymous founder (or founders) who goes under the pseudonym Ryoshi. If you're putting your money into a crypto project, one of the first things to research is who's in charge. Their background can tell you a lot about the caliber of the project, and help identify potential scams.
  • Lots of hype, but little substance. Shiba Inu grew by over 43,000,000% in 2021 as investors tried to find the next Dogecoin (DOGE). That growth is not sustainable, especially for a project that doesn't do much. Shiba Inu already has a bigger market cap than existing metaverse cryptos with established virtual worlds. In contrast, Shiba Inu has a fairly unexciting DEX and a metaverse that's under construction.
  • Almost 65% of tokens held by just 10 accounts. Crypto whales are powerful investors who can have a big impact on a crypto's price. When a large proportion of a currency is held by a small number of people -- which crypto-analysis firm CoinCarp shows is the case for SHIB -- smaller investors are at risk of market manipulation.

When you look at the rags-to-riches stories of Shiba Inu and Dogecoin, it is tempting to think that you might be able to get rich on the back of these pet coins. The trouble is that a lot of people have also lost money buying SHIB. If you'd bought Shiba Inu at its high in October last year, you'd have lost 70% of your investment.

All cryptocurrencies carry risk, which is why it's important to only invest money you can afford to lose. Another way to minimize risk is to keep a long term perspective and look for cryptocurrency projects with solid foundations that are more likely to build wealth.

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