If you think the stock market has made investors richer over the past couple of years, take a closer look at the cryptocurrency arena. The aggregate value of digital currencies nearly tripled to $2.2 trillion last year, and was up more than 14-fold between the March 2020 bottom and the end of 2021.
But even these jaw-dropping gains can’t hold a candle to the performance of meme coin Shiba Inu (CRYPTO:SHIB) last year.
Shiba Inu fetched investors a historic return in 2021
Investors had the opportunity to purchase SHIB tokens at midnight on Jan. 1, 2021 for $0.000000000073, according to CoinMarketCap.com. By years’ end, these same tokens were going for about $0.000034. By erasing six zeroes after its decimal point, Shiba Inu galloped higher by a cool 46,000,000%. Keeping in mind that single-year gains of 10,000% are extremely rare in the stock market — and a gain of 46,000,000% in 12 months is unheard of.
To put this increase into context, it would have only taken an investment of a little over $2 at the beginning of 2021 for a SHIB holder to become a millionaire by year’s end.
However, the world’s hottest cryptocurrency has struggled mightily since reaching an all-time intra-day high of $0.00008841 on Oct. 27. Through mid-January, SHIB had retraced by 66% and decisively fallen out of the top-10 largest cryptocurrencies by market value.
The $64,000 question is: Should investors buy the dip in Shiba Inu tokens now that they’re worth a third of what they were three months ago? Let’s take a closer look.
Catalysts that could push Shiba Inu higher
Arguably the biggest catalyst for optimists is the power of “FOMO” in the cryptocurrency space. FOMO stands for “fear of missing out.” After watching Bitcoin skyrocket by as much as 8,000,000,000% since July 2010, Shiba Inu investors are somewhat desensitized to the possibility of a price reversion.
Shiba Inu continues to benefit from an inherent buy bias in the crypto arena. Although select crypto exchanges do allow digital currencies to be short-sold, betting on lower prices is considerably tougher in the crypto realm than it is with stocks. With the exception of Bitcoin, there are no derivatives, such as futures trading or options, with cryptocurrencies. This makes it a lot easier for the bulls to remain in charge.
In 2022, Shiba Inu investors will be looking to two projects as key catalysts. First, there’s the expected rollout of layer-2 blockchain project Shibarium, which is designed to significantly lower transaction fees for SHIB and make it more competitive as a payment coin. Second, investors are awaiting updates on the Oshiverse, which’ll feature a play-to-earn game that’ll be developed for iOS and Android smart devices. Non-fungible token-based gaming won’t launch until Shibarium is in place.
A final key catalyst would be increased retail adoption. Last year, movie theater chain AMC Entertainment and tech-focused online retailer Newegg Commerce announced they’d accept SHIB as a form of payment. Brand-name companies doing the same in 2022 could provide a lift to Shiba Inu.
Reasons SHIB could tumble
On the other hand, there’s an equally long list of reasons Shiba Inu could continue to falter.
Potentially the biggest issue with this ultra-popular digital currency is that it lacks a competitive edge and differentiation. There are nearly 17,000 cryptocurrencies now listed, according to CoinMarketCap.com, and standing out in a crowded space is becoming more difficult. As an ERC-20 token that’s built on the Ethereum blockchain, Shiba Inu is nothing more than a payment coin with high fees and a relatively slow processing time (at least for the time being). There’s nothing unique about SHIB that would coerce merchants to accept it as a form of payment.
Speaking of merchants, only around 600 merchants worldwide are taking it as payment, per online business directory Cryptwerk. Although this is a considerably higher number than three months ago, it’s a minuscule figure when taking into account that there are north of 500 million entrepreneurs worldwide. In short, SHIB has very limited utility.
Another concern is that coin burn won’t be providing much in the way of benefits in 2022. Last year, Ethereum co-founder Vitalik Buterin burned more than 410 trillion SHIB tokens (about 41% of the circulating supply) by sending them to a dead blockchain address. Ongoing coin burn simply won’t have much of an effect with 549 trillion SHIB still in circulation.
Lastly, history is no friend of Shiba Inu. Payment coins that’ve rallied by 24,000% or more in a short time frame have a history of retracing 93% to 99% within 26 months after hitting their all-time high.
Now that we’ve had a look at what could propel SHIB higher or push it lower in 2022, let’s get back to the important question at hand: Should investors buy the dip?
Although the power of FOMO and social media-driven hype has proved strong in the cryptocurrency space for short periods of time, history has shown time and again that investments need a competitive edge or differentiation to thrive. Shiba Inu doesn’t offer any of these traits, which makes it highly unlikely that it’ll be bouncing back in a sustainable fashion anytime soon.
History is also pretty clear that life-altering gains in a short time frame are typically met with equally epic reversions. After watching privacy coin Verge plunge 99.6% following its gain of close to 1,200,000%, I can only imagine a similar fate awaits SHIB after gaining 46,000,000% in just 12 months.
Though Shiba Inu is down 66% from its all-time high, it’s not a bargain.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.