With just four weeks left before we say goodbye to 2021, it looks like we’ll witness another year where cryptocurrencies handily outperform the stock market.
For its part, the benchmark S&P 500 has easily surpassed its historic average annual gains. Through the market close on Nov. 29, the widely followed index had risen almost 24% since the year began. For some context, the S&P 500 has averaged a total return, including dividends paid, of a little over 11% since the beginning of 1980.
But the gains for digital currencies have been even more robust. After beginning the year with an aggregate market cap of about $774 billion, the total value of all cryptocurrencies on Nov. 29 was a hearty $2.57 trillion. That’s an increase of 232% in a day shy of 11 months.
How Shiba Inu turned $2 into more than $1 million
As we readied to enter December, meme-based coin Shiba Inu ( SHIB 3.55% ) was delivering a year-to-date gain for the ages. At midnight on Jan. 1, CoinMarketCap.com noted SHIB tokens could be purchased for a mere $0.000000000073 (that’s 10 zeroes). But as of the very early morning on Nov. 30, that same SHIB token was changing hands for $0.00004763. In going from 10 zeroes to four, Shiba Inu has gained 65,246,475%. This means investing less than $2 at midnight on Jan. 1 would have made you a millionaire as of the time of this writing.
No shortage of catalysts have played a role in pushing Shiba Inu’s valuation into the stratosphere. To begin with, the fear of missing out has been critical in pushing SHIB higher. After watching Bitcoin gain 8,000,000,000% in 11 years, it’s been easy for the Shiba Inu community to utilize social media as a medium to create buzz and hype for their coin.
Additionally, increased visibility and liquidity are doing their part. More cryptocurrency exchanges than ever are accepting SHIB for listing, which is improving liquidity and has grown the community beyond 1 million hodlers. Further, the launch of ShibaSwap in July 2021 allows hodlers to stake their coins, thus providing an incentive for investors to hold for a longer period of time.
Shiba Inu is also reveling in its first major merchant win. In late October, AMC Entertainment CEO Adam Aron posted a poll on Twitter that asked if his company should accept SHIB tokens. Of the 153,100 respondents, 87.6% were in favor of the move. AMC expects to have Shiba Inu coin integrated into its online payment platform by sometime in the first quarter of 2022.
The icing on the cake for SHIB tokens are tweets from Tesla Motors‘ CEO Elon Musk. Even though Musk has nothing to do with the Shiba Inu project, he recently adopted a Shiba Inu-breed dog and is known for posting Shiba Inu-themed memes. Investors have taken these tweets as all-out buy signals for dog-themed crypto coins.
Could SHIB moon to $1 per token in 2022?
A year-to-date gain of more than 65,200,000% is incredible. It’s even crazier to think that, on Oct. 27, when SHIB hit an all-time intraday high, it was up over 121,000,000%. But the self-proclaimed “SHIBArmy” believes it could head even higher.
Peruse Twitter, Reddit, and YouTube, and you’ll see one common theme: the belief that SHIB could hit $1 per token. In percentage terms, we’re talking about SHIB gaining about 2,099,417% from the time of this writing. That might sound like a piece of cake after delivering a 65,200,000% year-to-date return, but the realistic chance of SHIB making a run at $1 is zero. Not 1 in a million or 1 in 10 billion. It’s zero.
Let’s start with the logistics of market value. It can be easy in the crypto space to get lost in the idea of microscopically priced coins and big token counts. This is to say it’s psychologically appealing from an investment perspective to own millions or potentially billion of tokens and believe that it would be considerably easier for a coin to double from, say, $0.00002 to $0.00004 than it would be for a digital currency to go from $20 to $40.
Percentagewise, the move is the same, but investors often (incorrectly) believe that the low-priced security has a greater chance of doubling. It’s the same premise that encourages new investors to chase penny stocks, which often leads to them getting burned.
Hypothetically speaking, if Shiba Inu were to reach $1, the 549.05 trillion SHIB tokens outstanding would give it a market cap of… $549.05 trillion. To put this into perspective, the largest publicly traded company on the planet is Apple, with a $2.63 trillion market cap. In terms of countries, the U.S. is expected to lead the world with nearly $22.7 trillion in global gross domestic product (GDP) in 2021. At $1, Shiba Inu would have a valuation six times greater than estimated global GDP this year. It wouldn’t happen.
Also, as cryptocurrencies become larger and more widely known, derivative trading options become more common. For instance, Bitcoin has tracking funds and futures that investors can trade off crypto exchanges. The thing about derivatives is they allow big money to more easily place bets against digital currencies. If Shiba Inu does somehow use its social-media buzz, hype, and FOMO to rise in the ranks, the big-money bets against it would almost certainly crush it well before it neared $1.
But wait — there’s more
On top of it being illogical for Shiba Inu to reach a valuation of six times global estimated GDP, there are key reasons to be highly critical of its current market value of $26 billion.
For starters, Shiba Inu has an extremely limited real-world use case. To be fair, most cryptocurrencies have a limited real-world use case, with the exception of Bitcoin, which is now legal tender in El Salvador. But for a coin that’s been hovering right around the top 10 in terms of market cap, having fewer than 375 merchants worldwide accept SHIB as a form of payment is laughably low. Keep in mind that a notable number of these merchants are crypto exchanges or services. The fact is that Shiba Inu has almost no use outside of a cryptocurrency exchange.
To build on this point, landing AMC as its first major merchant will likely prove symbolic. Since utilizing SHIB to buy gift cards, movie tickets, or concessions would result in high transaction fees and a taxable event, it’s unlikely we’ll see SHIB used much, if at all, for purchases at AMC.
The bigger concern here is that Shiba Inu doesn’t offer anything that resembles a competitive edge. Its community may be good at generating hype and buzz on social-media boards, but that’s not going to provide lasting value.
What we know right now is that Shiba Inu is an ERC-20 token built on the Ethereum blockchain, which leaves it susceptible to the high transaction fees and processing lag times that sometimes hit the Ethereum network. There are so, so many better payment coins available with lower transaction fees and faster settlement times.
And then there’s history, which says Shiba Inu is doomed. When digital currencies deliver life-altering gains in a short period of time, they have a tendency to retrace more than 90% in an equally short time frame.
In other words, not only is the idea of SHIB hitting $1 ridiculous, it’s very likely that the world’s hottest cryptocurrency won’t sustain its current market value moving forward.
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.