Shiba Inu Is Down 84%. Should You Buy the Dip?
Shiba Inu has generated monster returns in the past thanks to its strong community of supporters.
The fact that the crypto has a small number of active developers doesn't bode well for its ability to increase real-world utility.
Shiba Inu tokens are being burned, but the current pace will barely put a dent in the massive supply base.
10 stocks we like better than Shiba Inu ›
Shiba Inu (CRYPTO: SHIB) could not have performed better for investors a few years ago. From the start of 2021 to its all-time high in late October that year, this digital asset absolutely skyrocketed. There are surely some very lucky speculators who amassed life-changing wealth.
However, it's been a different story since then. While the overall crypto market has held up well, despite the volatility, Shiba Inu has a lot of work to do to catch up to its former glory.
As of May 20, this meme token trades at $0.00001428, which is 84% below its peak from about three and a half years ago. Is it time to buy the dip with Shiba Inu? I think investors should look at both sides of the argument to gain a more thorough understanding.
As of this writing, Shiba Inu carries a market cap of $8.4 billion. This makes it the 16th largest cryptocurrency on Earth. This is a higher value than companies like Etsy and Peloton.
As a result, it's hard to argue that Shiba Inu doesn't possess a strong community of supporters. These supporters, known as the "Shib Army," help to drive interest in the token online. Speculators understand that the community can lead to various hype cycles. And if the timing is correct, there's a chance to achieve huge profits in a short period of time.
Shiba Inu can be viewed as a "Dogecoin killer." That's because it's built to be compatible with the Ethereum network. This means that Shiba Inu has greater functionality than its dog-themed predecessor. Tokens can be used in decentralized exchanges, to trade non-fungible tokens, or within decentralized finance protocols. In theory, this raises utility.
What's more, Shiba Inu's developers are trying to increase adoption with various features. Shibarium, a layer-2 scaling solution, was introduced to speed up transactions and lower costs. A dedicated metaverse was also launched in December last year that allows users to interact in a virtual world. This might draw some excitement toward Shiba Inu.
According to venture firm Electric Capital, Shiba Inu isn't even on the list of top 100 cryptocurrencies when it comes to the number of developers actively working on it. This doesn't bode well for its future, especially if you believe, like I do, that a cryptocurrency's ultimate viability comes down to how much real-world utility it can introduce. This puts Shiba Inu at a major disadvantage.
The tokenomics also leave much to be desired. There are currently 589 trillion Shiba Inu tokens in circulation. That intentionally high supply base is the opposite setup of the scarcity Bitcoin possesses, for instance. This makes it all the more difficult for Shiba Inu's price to steadily rise over time.
There is a coin-burning mechanism in place to reduce supply. On May 19, though, only 49 million coins were burned. That's not going to put a meaningful dent in the supply anytime soon, as it would take more than 16,000 years to burn half the outstanding supply.
The fact that anyone can create a new token out of thin air poses a key risk for Shiba Inu, which is competition. The cryptocurrency industry remains the newest asset class out there. Consequently, it's still characterized by unhealthy amounts of speculation among market participants. There's no shortage of tokens to bet on in the hopes of getting rich quick. This increases the chances that people will move away from Shiba Inu one day onto the newly released shiny token.
For long-term investors who want to own high-quality assets, there's really no reason to own Shiba Inu. The bear case for the meme token is much more compelling than the bullish argument. Even though the cryptocurrency is trading well off its peak, investors should avoid Shiba Inu.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Etsy, and Peloton Interactive. The Motley Fool has a disclosure policy.
Shiba Inu Is Down 84%. Should You Buy the Dip? was originally published by The Motley Fool
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