Volatility has always been a feature of the cryptocurrency markets. The collective value of all coins and tokens in existence recently hit an all-time high of nearly $3.9 trillion, but the market is in correction territory again, with a 12% drop as of this writing. Investors might remember when the industry suffered a 71% loss in value around one year after its previous major peak in 2021.
Some individual cryptocurrencies are performing even worse than the broader market right now, though. Meme-token Shiba Inu (SHIB 0.92%) was sitting on a year-to-date gain of 251%, but it has since plummeted 41% from its 52-week high.
Shiba Inu staged an incredible run in 2021 when it delivered a return that could have grown a mere $3 investment into over $1 million. That episode ended with a collapse in value of more than 90%, so is the recent dip the start of something worse or an opportunity to buy before another historic rally?
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Shiba Inu is still down from its 2021 high
Shiba Inu reached an all-time high of $0.000086 in 2021, and it ended that year with a total gain of 45,278,000%, which remains one of the best annual returns in the history of financial markets.
As I mentioned earlier, Shiba Inu lost most of its value after that run, so its strong gain in 2024 was an encouraging sign that a recovery might be in the cards. However, even at its recent 52-week high of $0.000036, it hadn't even clawed back half of its peak value from 2021.
As it turns out, the latest rally was driven by another dose of speculation fever. Shiba Inu doesn't have any utility -- it's only accepted as payment for goods and services by 1,025 businesses worldwide (according to Cryptwerk), and many of them are obscure internet businesses, providers of crypto services, and online gambling houses.
Developers have tried to create new use cases for Shiba Inu, and they even launched Shibarium, which makes the token cheaper and more efficient to use in transactions. However, its price swings primarily on the whims of speculators, who buy it in the hope that someone is willing to pay a higher price in the future.
The crypto industry has the wind at its back, but Shiba Inu faces its own challenges
Trump's election win on Nov. 5 was the spark that ignited the latest rally across the crypto markets, including in speculative tokens like Shiba Inu. He will lead the most pro-crypto administration in U.S. history, and investors think a lighter regulatory environment will pave the way for new opportunities to create value.
Outgoing Securities and Exchange Commission (SEC) chairman Gary Gensler was a crypto critic, and Trump recently nominated crypto advocate Paul Atkins to replace him (pending Senate approval). That will trigger a massive shift in the way America's top financial markets watchdog approaches the crypto industry.
That will probably benefit cryptocurrencies like Bitcoin (BTC -0.79%) and Ripple's XRP (XRP 0.84%) the most because they have real use cases. Investors view Bitcoin as a store of value, and they can even buy SEC-approved exchange-traded funds (ETFs). XRP, on the other hand, plays a role in standardizing transactions within Ripple's innovative payments network for banks.
Not only does Shiba Inu lack those features, but it also has a supply problem. More than 589.2 trillion tokens are in circulation, which is why each token trades at such a low price of $0.000036.
589.2 trillion tokens multiplied by $0.000036 per token equals a market capitalization of $12.5 billion. So, for Shiba Inu to trade at a more normal price of $1 per token, simple math suggests its market capitalization would have to be at least $589.2 trillion. According to UBS, that's more than the total wealth of every person on Earth (at the end of 2022).
Don't bet on another historic run for Shiba Inu
Shiba Inu's enormous supply doesn't necessarily mean it can't deliver gains for investors, but scarcity is a big reason cryptocurrencies like Bitcoin have become so valuable. Plus, although the Shiba Inu community is trying to reduce supply by "burning" tokens, it could take thousands of years before enough of them are eliminated to justify a price of $1 per token.
Personally, I think Shiba Inu's lack of a true use case is a bigger barrier to future price gains. There are real reasons to own cryptocurrencies like Bitcoin and XRP, but that simply isn't the case for Shiba Inu.
It's possible Shiba Inu could recover from its latest dip and march toward its all-time high in 2021, but speculation is a flimsy foundation upon which to create value. As we learned previously, it can come crashing down without warning, which is why I don't think investors should be buying Shiba Inu at any price.
