Shiba Inu (SHIB +3.16%) is a highly speculative cryptocurrency that was created in 2020 by an anonymous developer named Ryoshi. They wanted to replicate the success of the industry’s original meme token, Dogecoin, which was soaring in value at the time.
Shiba Inu generated an eye-popping return of 45,278,000% during 2021, which would have been enough to turn a perfectly timed investment of just $3 into over $1 million. To this day, it remains one of the best annual returns in the history of the financial markets, but since it was driven by pure speculation, the euphoria was short-lived.
Shiba Inu has since lost 95% of its peak value and trades at just $0.000004 per token as I write this on July 13. Investors might be surprised to know there is a way this meme token can mount another blistering rally and potentially even cross the $1 milestone. But can it happen before 2027? Read on for the mind-blowing answer.
Image source: Getty Images.
Shiba Inu is still searching for a use case
The key to creating long-term value for any cryptocurrency is to find a sustainable source of demand from either consumers or investors. Without one, a given coin or token will typically experience extreme volatility as speculative investors buy and sell on a whim in pursuit of quick profits.
Bitcoin experiences most of its demand from investors who believe its decentralized structure and capped supply make it a legitimate store of value. Then there is Ether, the native cryptocurrency of the Ethereum platform, where developers build decentralized software applications. Every time someone uses one of these apps, they activate smart contracts, which trigger fees payable in Ether, so there is always steady demand for the cryptocurrency.
As a speculative meme token, Shiba Inu simply lacks the attributes of the industry’s much larger cryptocurrencies. It isn’t a good store of value, as proven by its 95% decline over the last five years. It isn’t a good payment mechanism either, because its volatility would make cash-flow management a nightmare for any business. That’s why just 1,200 merchants worldwide are willing to accept the token as payment for goods and services (according to crypto directory Cryptwerk).
Developers have tried to make Shiba Inu more useful by building a layer-2 blockchain solution called Shibarium, which makes transactions cheaper and faster, but it hasn’t moved the needle thus far. Developers are now building a layer-3 solution called the Shib Alpha Layer, which will turn the Shiba Inu ecosystem into a more functional network for building apps. This could drive more adoption.
Shiba Inu has an enormous supply problem
A lack of demand is only one hurdle to further upside for Shiba Inu, as it also faces a supply problem. There are 589.2 trillion tokens in circulation, so at the current price of $0.000004 per token, Shiba Inu has a market capitalization of $2.5 billion.
A price per token of $1 would result in a market cap of $589.2 trillion, making Shiba Inu 8 times more valuable than all 500 companies in the S&P 500 combined. For obvious reasons, that valuation is completely unrealistic.
The Shiba Inu community is trying to carve another pathway to $1 by “burning” tokens, which removes them from supply forever. Sending tokens to a dead wallet where they can never be retrieved is the simplest way to do this. However, when the upcoming Shib Alpha Layer officially launches, it will include a mechanism that automatically burns Shiba Inu tokens whenever someone uses a decentralized app built on the network, as a fee or “tax.”
In theory, the price per token should rise in proportion to the number of tokens burned, creating a legitimate path to upside.
It could take a mind-blowing amount of time to burn enough tokens
Based on Shiba Inu’s market cap of $2.5 billion, burning 99.99998% of the 589.2 trillion tokens currently in circulation to leave just 2.5 billion remaining would, in theory, result in a price per token of $1.
However, the community burned just 69.3 million tokens last month, which translates to an annualized rate of 831.6 million tokens. At this pace, it will take a staggering 708,000 years to burn enough tokens to justify a price of $1, so none of us will be around to witness the milestone.
But it gets worse, because this pathway won’t create any value, so nobody will actually make any money. Each Shiba Inu investor will have 99.99998% fewer tokens, so even though each token would be worth $1, their net financial position will be exactly the same as it is today.
Well, that isn’t entirely true. Each investor will be significantly worse off after 708 millennia of inflation.
