There are a lot of ways for investors to make money. They can buy bonds, put their money to work in bank certificates of deposit, purchase a commodity like oil or gold, or buy property/housing. But when examined over the very long term, no asset class has consistently delivered higher average annual returns than the stock market.
But over the past couple of years, cryptocurrencies have put the market’s historic average annual return to shame. While some digital currencies have delivered four-, five-, and six-digit percentage gains in a short time frame, no move has been more impressive than that of meme coin Shiba Inu (CRYPTO:SHIB).
Shiba Inu has made crypto investors millionaires in just over a year
Based on a Nov. 1 late-evening tick of $0.00006930 for SHIB, the most popular token among retail investors has returned 13,588,135% in 15 months. Put another way, a $100 investment on Shiba Inu’s debut day (Aug. 1, 2020) would have launched an investor into the top 1% of the wealthiest households in America.
What’s sparked such life-altering gains? To begin with, the fear of missing out (FOMO) looks to be playing a key role. Prior to Shiba Inu, multiple digital currencies had delivered gains that handily outpaced the broader market. Crypto investors are always on the lookout for the next moonshot coin, and they’ve demonstrated a willingness to pay up to chase it.
Billionaire Elon Musk has played a role, too. Musk has long supported Dogecoin, which also uses the Shiba Inu dog breed as its source of inspiration. Anytime Musk tweets about Shiba Inu-breed dogs or posts a picture of his own Shiba Inu puppy, named Floki, investors take it as their cue to pile into SHIB.
On a slightly more tangible basis, we’ve also witnessed a growing number of cryptocurrency exchanges listing Shiba Inu for trading. This should increase the number of investors holding SHIB, which’ll likely improve adoption.
There’s also the launch of decentralized exchange ShibaSwap this past July. ShibaSwap allows holders to stake their coins in order to earn interest. More importantly, it should encourage folks to hang on to their SHIB for a longer period of time.
Lastly, an inherent buy bias has helped launch Shiba Inu into the stratosphere. Although some of the largest cryptocurrencies, such as Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH), are relatively easy to short sell or bet against via derivatives, it’s difficult to bet against the vast majority of digital currencies, including Shiba Inu.
Want a reason to avoid SHIB? How about 13,447 of them?
While there’s no denying that Shiba Inu has generated enormous gains over a very short time frame, there are also some very good reasons to avoid SHIB like the plague. In fact, there are 13,447 very good reasons to look elsewhere.
Although Shiba Inu has made a name for itself via social media buzz, it lacks the competitive advantages required to stand out over the long run.
According to CoinMarketCap.com, there were 13,447 other cryptocurrencies listed for trading, as of the beginning of November. That’s 13,447 competing blockchain projects constantly diluting the crypto space — and this figure continues to grow on a weekly basis. Even if many of these blockchain projects fail to impress, there will undoubtedly be new networks that execute faster, provide lower transaction fees, or have other tangible advantages to what Shiba Inu offers.
To offer a few examples, in no particular order:
- Bitcoin is the only digital currency to be recognized in any country (El Salvador) as legal tender.
- Ethereum is the backbone upon which decentralized finance (DeFi) is being built. DeFi uses smart contracts on financially focused blockchain to execute payments that might otherwise be slowed or stopped by financial institutions.
- Cardano (CRYPTO:ADA) recently introduced smart contracts to its blockchain and aims to be a key rival to Ethereum.
- Payment coins Stellar (CRYPTO:XLM) and XRP (CRYPTO:XRP) can execute cross-border payments in just a couple of seconds. Comparatively, existing infrastructure might delay cross-border payments for up to a week.
- Nano (CRYPTO:NANO) can execute payments in under a second and doesn’t charge a transaction fee.
These are just some of the projects that offer tangible competitive advantages. Meanwhile, Shiba Inu offers nothing unique, relative to other crypto payment tokens.
There is a laundry list of reasons to stay away from Shiba Inu
If these 13,447 reasons aren’t enough to convince investors to avoid Shiba Inu like the plague, I have a few more to share.
For instance, earlier this week I examined how other payment coins fared after rattling off mammoth gains of their own in a short time frame. I looked at XRP’s 62,452% gain in a little over 10 months, Litecoin‘s 24,613% in a 30-month stretch, and Nano’s 461,575% increase in under 10 months. Following these big gains, XRP lost 96% of its value in 26 months, Litecoin shed 93% of its market cap in a year, and Nano nosedived 99% in the subsequent 26 months after its high. History would suggest that a gain of more than 13,500,000% in 15 months is going to eventually be met with a mammoth correction.
If you want something more tangible, look at SHIB’s utility — or in this case, its lack thereof. Online business directory Cryptwerk shows that only 105 merchants at the beginning of November are willing to accept SHIB tokens. That’s an absurdly low figure for the ninth-largest cryptocurrency by market cap, and it signifies how few businesses currently believe SHIB has long-term potential.
Another reason to be highly skeptical of Shiba Inu’s gains is the median holding period. According to leading cryptocurrency exchange Coinbase, the median hold time for its customers is a measly 10 days. By comparison, most popular digital currencies have hold times ranging from 30 to 90 days.
All this data points to SHIB being driven by emotions, hype, and FOMO, with little in the way of tangible catalysts in its sails. That’s a recipe for disaster for Shiba Inu’s investors.
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.