If you thought stock investors had a good 2021, take a closer look at how cryptocurrency investors fared.
As of the very early hours of Dec. 31, the aggregate value of all digital currencies was $2.22 trillion. Based on where the crypto market began the year, we’re talking about an increase of more than 185%. Comparatively, the benchmark S&P 500 was higher by 27%. Cryptocurrencies running circles around the stock market has become a common theme in recent years.
Although Bitcoin and Ethereum accounted for a significant portion of 2021’s nominal market-value gains, it was another cryptocurrency that captivated investors and set records.
In the stock market, a single-year gain of 10,000% or more is quite rare. Meanwhile, in the cryptocurrency space, single-year gains of 100,000% or more are few and far between. This makes what Shiba Inu (CRYPTO:SHIB) did in 2021 all the more special.
Crypto investors couldn’t get enough of Shiba Inu-themed coins in 2021. Image source: Getty Images.
The crypto space went to the dogs in 2021
According to CoinMarketCap.com, investors had the opportunity to scoop up SHIB tokens at midnight on Jan. 1, 2021, for a microscopic $0.000000000073 apiece. But with less than 24 hours to go before ringing in a new year, those same tokens were changing hands for $0.000034. That’s still a puny per-token price, but it represents an increase in value of more than 46,500,000%! To put this into context, it would have taken only a $2.15 initial investment on Jan. 1 to have $1 million at the time of this writing.
The question likely on your mind is, “How?” How, exactly, does any asset, cryptocurrency or not, execute a moon shot of more than 46,500,000% in 12 months? The answer relies on a combination of catalysts, hype, and market structure.
In terms of catalysts, Shiba Inu was listed on numerous new exchanges throughout the year, and it launched the decentralized exchange ShibaSwap in July. Both ShibaSwap and the new exchange listings helped to improve liquidity and grow the number of SHIB holders beyond 1.1 million, according to Etherscan. The ability to stake coins on ShibaSwap to earn passive income has also encouraged longer holding periods.
As for hype, fear of missing out (FOMO) has been a crucial component in SHIB’s success. With Bitcoin gaining as much as 8,000,000,000% in 11 years, Shiba Inu has had no trouble attracting inelastic buyers who aren’t afraid of a big reversion. It happens to be one of the most-searched cryptocurrencies on the internet in the U.S., too.
Lastly, there’s the market structure of the cryptocurrency space. Whereas short-sellers (i.e., investors wanting the price of a security to decline) can easily bet against stocks by shorting shares directly or purchasing a derivative, such as an option contract, it’s a lot tougher to bet against digital currencies — at least beyond the two most-prominent names. With limited pathways for short-sellers to strike, Shiba Inu has benefited, at least temporarily, from an inherent buy bias.
Image source: Getty Images.
Can Shiba Inu hit $0.01?
Peruse social media message boards and you’ll have no trouble finding SHIB supporters calling for the cryptocurrency to eat up another zero after its decimal point, or even to make a run at $0.01 in 2022. The question is, can Shiba Inu really hit $0.01 this year?
To put this as bluntly and succinctly as possible, no.
There are four key reasons the $0.01 price target being floated around on social media is nothing more than a retail investor’s fantasy.
To begin with, the cryptocurrency space has more than 16,200 listed tokens, per CoinMarketCap.com. To stand out, projects need to offer competitive advantages and differentiation. Investors aren’t going to get any competitive advantages or differentiation with Shiba Inu. It’s nothing more than an ERC-20 token built on the Ethereum blockchain that, for the time being, suffers from the same high transaction costs and lag in processing times that accompany the Ethereum network. And I’m sorry to say it, but social media followers and hype don’t count as sustainable differentiation.
The second issue for Shiba Inu, which builds on the previous point, is that it has virtually no utility outside of a cryptocurrency exchange. Online business directory Cryptwerk lists just 394 merchants that accept SHIB as a form of payment as of Dec. 31. What’s more, 44 of these “merchants” are crypto exchanges. This means only 350 businesses worldwide actually accept SHIB as payment. While optimists would proclaim that Shiba Inu has to start somewhere, that “somewhere” shouldn’t be a nearly $19 billion market value when it has no real-world utility.
Image source: Getty Images.
A third huge problem for Shiba Inu is that history is not on its side. In those rare instances where a cryptocurrency galloped higher by 24,000% or more in a very short time, the precedent has almost always been that an equally epic reversion awaits. We watched payment coin Nano rise by more than 461,000% in under 10 months, then shed 99% of its value over the subsequent 26 months. Similarly, privacy coin Verge gained almost 1,200,000% in about a year, then lost 99.6% of its value. Following a gain of 46,500,000%, history would suggest a massive pullback awaits.
Fourth and finally, a price target of $0.01 makes no sense from a valuation standpoint. With 549 trillion SHIB in circulation, even $0.01 would give this project a $5.49 trillion value. That’s about double the valuation of Apple, which would be truly insulting given how little real-world value Shiba Inu brings to the table.
To sum up, Shiba Inu has absolutely no chance of hitting $0.01 in 2022.
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.
This news is republished from another source. You can check the original article here