If you invested in stocks during the coronavirus crash, there’s a good chance you’re sitting on some healthy gains. The benchmark S&P 500 took less than 17 months to more than double from its March 2020 bottom.
But if you decided to put your money to work in cryptocurrencies, there’s a possibility you’ve lapped the stock market many times over. That’s because the aggregate value of digital currencies has soared more than 1,700% over the same time frame to $2.62 trillion. While Bitcoin and Ethereum (CRYPTO:ETH) have led this nominal increase, it’s meme coin Shiba Inu (CRYPTO:SHIB) that’s come out of nowhere to become the 11th-biggest cryptocurrency by market value ($26.4 billion, as of Nov. 19).
Shiba Inu made people millionaires in roughly a year
If you want the definition of life-altering gains, look no further than SHIB tokens, which galloped from a print of $0.00000000051 per token on its debut, Aug. 1, 2020, to $0.00004814, as of this past Friday, Nov. 19. It might be tough to tell with all of the zeroes, but this works out to a gain of 9,439,116%. Put another way, an $11 investment in Shiba Inu coin on Day 1 would have made you a millionaire today. By comparison, the S&P 500 has “only” delivered a total return, including dividends paid, of 29,751% since the beginning of 1965.
There is a laundry list of catalysts that have sent Shiba Inu to the moon. For instance, the fear of missing out (FOMO) has clearly played a role. Cryptocurrency investors have watched Bitcoin return as much as 8,000,000,000% since July 2010 and are therefore more willing to chase skyrocketing crypto tokens even higher.
Elon Musk has done his part, too. Even though Shiba Inu is one of the most searched cryptocurrencies in the U.S., and social media has been utilized as a tool to grow the community, Musk’s tweets regarding Shiba Inu memes, or his recently adopted Shiba Inu-breed dog (Floki), have been a cue for investors to pile into SHIB.
As for something more tangible, Shiba Inu has received a lift from SHIB being accepted for listing on a growing number of cryptocurrency exchanges. More listings mean better liquidity and, likely, a bigger community. Likewise, the launch of decentralized exchange ShibaSwap in July has improved liquidity and given hodlers the ability to stake their coins. This should ultimately encourage longer hold periods.
This key catalyst can’t be counted on to push SHIB higher
But there’s another catalyst that’s perceived to have played a huge role in Shiba Inu’s ascent: Coin burn.
Most folks are probably familiar with share buyback programs instituted by publicly traded companies. Under a share repurchase program, a company uses its cash to buy back some of its shares and take them out of circulation. This reduces the remaining number of shares outstanding. Ideally, this makes each remaining share that much “rarer” and more valuable, and it can help boost earnings per share by dividing net income into a smaller number of outstanding shares.
Coin burn holds the same basic premise. Tokens currently in circulating supply are sent to a dead blockchain address where they can no longer be accessed. With these coins removed from circulation, each remaining token should be that much more valuable.
In the case of Shiba Inu, roughly half of the initial 1 quadrillion token supply (yes, 1 quadrillion!) was sent to Ethereum co-founder Vitalik Buterin. Not wanting anything to do with controlling such a large stake of coins, Buterin donated 50 trillion SHIB to the India Crypto COVID-19 Relief Fund and sent more than 410 trillion SHIB to a dead blockchain address. In other words, with the click of a button, Buterin burned approximately 41% of Shiba Inu’s coin supply.
However, coin burn is unlikely to support higher prices for SHIB moving forward for two key reasons. First, the ongoing coin burn we’re witnessing is fractional in nature. Following the removal of 41% of SHIB’s tokens from circulation, additional burn events aren’t going to move the needle anywhere close to the same degree.
Second, and far more important, having fewer coins in circulation really doesn’t matter when we’re talking about a cryptocurrency with no competitive edge or differentiation.
Here’s why Shiba Inu’s future is bleak
For a small number of cryptocurrencies, there exists a pretty clear path for financially focused and nonfinancial blockchain projects to get applied in the real world. But for the vast majority of cryptocurrencies, there’s no true path forward to widespread utilization. The latter is where Shiba Inu falls.
Shiba Inu is an ERC-20 token built on Ethereum’s blockchain. While Ethereum’s smart contract-driven blockchain has plenty of real-world application, SHIB is constrained by the high transaction fees and potential processing lags associated with the Ethereum network. There are plenty of other coins that can be used to purchase goods and services that’ll validate and settle faster and cheaper than SHIB.
Shiba Inu coin’s lack of a competitive edge is firmly on display when it comes to its real-world utility. According to online business directory Cryptwerk, just 138 merchants are willing to accept SHIB tokens as payment. That’s an incredibly small number for the 11th-ranked digital currency in the world by market value.
There’s also no tie-in with Elon Musk. Even though the community seemingly waits on the edge of their seat for a Shiba Inu-themed tweet from Musk, the world’s richest person owns rival Dogecoin in his crypto portfolio and has offered to help developers improve the Dogecoin network.
Without any true standout qualities, and the bulk of Shiba Inu’s coin burn now in the rearview mirror, it’s going to be virtually impossible for the world’s hottest cryptocurrency to hold onto its mammoth short-term gains.
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.