Looking back to the beginning of the 20th century, no asset class has been more consistent at building wealth for investors than the stock market. Although stocks do have their down years, the average annual return of equities handily outpaces the likes of gold, oil, housing, and bonds over the very long term.
But in recent years, cryptocurrencies have lapped the broader market many times over. While the Big Two, Bitcoin (CRYPTO:BTC) and Ethereum, often get all the glory, the buzz right now belongs to meme coin Shiba Inu (CRYPTO:SHIB).
Shiba Inu has delivered life-altering gains in a little over a year
Taking into account an intraday price of $0.00008841 on Oct. 27, SHIB tokens have rallied 17,335,194% since it made its debut 15 months ago. Put another way, a $10 investment in SHIB on its first day of trading (Aug. 1, 2020) would be worth about $1.73 million, as of this intraday price on Oct. 27.
How does an obscure token rally more than 17,300,000% in a little over a year? The catalysts, listed in no particular order, break down as follows:
- The launch of decentralized exchange ShibaSwap in July allows holders to stake their coins. In doing so, it’s encouraging investors to hold onto their investment for a longer period of time.
- As Shiba Inu’s popularity and token price have increased, so have the number of cryptocurrency exchanges permitting trading on their platforms. More listings for SHIB mean a larger community and greater brand recognition.
- Billionaire Elon Musk deserves credit, too. Even though Musk doesn’t own SHIB in his crypto portfolio, he did recently adopt a Shiba Inu-breed dog named Floki. Anytime Musk tweets about his dog or posts a meme featuring the Shiba Inu dog breed, SHIB investors take that as their cue to drive the price higher.
- A lack of ways to bet against most cryptocurrencies not named Bitcoin or Ethereum has created a buy bias. With few available derivatives and minimal access to short-selling on many crypto exchanges, buyers have been controlling the show.
Of course, the big question is, “What’s next for SHIB?”
The answer, if history has a say, is a steep haircut.
History suggests SHIB is in big trouble
The fact of the matter is that nothing is guaranteed in the investment world — and that holds true for cryptocurrencies. But more often than not, history rhymes. This is to say that history can provide clues as to what could happen next with a stock, or in this instance a very popular cryptocurrency.
When I looked back at other payment-focused coins that had previously enjoyed monster moves higher, a clear trend emerged. Within a relatively short amount of time, they’d all lost well over 90% of their value.
For example, XRP (CRYPTO:XRP), the token previously referred to as Ripple, galloped from less than a penny ($0.0054) on March 1, 2017 to hit $3.3778 as a closing price on Jan. 7, 2018. That’s a 62,452% gain in 10 months and a week. Then, it all fell apart for the momentum-driven XRP. Between profit-taking and legal issues, the XRP token dove all the way back to $0.1396 on March 12, 2020. In a little over 26 months, XRP shed a whopping 96% of its value. And it’s far from alone.
Litecoin (CRYPTO:LTC), which has long been considered a version of silver to Bitcoin’s gold standard, caught fire in a 30-month stretch. Between May 18, 2015 and Dec. 18, 2017, Litecoin’s tokens increased in value by 24,613%. For some context, it took the benchmark S&P 500 about 55 years to gain a similar amount. But by Dec. 14, 2018 (i.e. one year later), LTC tokens could be scooped up for 93% less than its peak closing high.
Even Nano (CRYPTO:NANO), which is one of my favorite under-the-radar cryptocurrencies, went through similar struggles. On March 10, 2017, crypto investors could have scooped up Nano tokens for $0.0073 (less than a penny!). By Jan. 2, 2018, they were going for $33.7023. That’s a gain of 461,575% in less than 10 months. But by March 16, 2020, Nano found itself back at $0.3527 per token, representing a loss of 99% from its high.
To add, Bitcoin has also had its fair share of 80%-plus pullbacks over the past decade.
History is quite clear that life-altering upside in a short time frame is virtually impossible to hang onto. If history rhymes or repeats, SHIB tokens are going to lose at least 90% in the weeks, months, and maybe years that lie ahead.
But wait — there’s more
Then again, history isn’t the only problem Shiba Inu is contending with.
As I’ve previously pointed out, the SHIB token is only accepted by approximately 100 mostly obscure online merchants, according to online business directory Cryptwerk. Despite working its way into the top 10 cryptocurrencies by market cap, Shiba Inu has virtually no use outside of a cryptocurrency exchange.
Equally disturbing, cryptocurrency exchange and ecosystem Coinbase noted on Oct. 29 that the median hold time for SHIB on its platform was (drum roll) only 11 days. What this tells us is that Shiba Inu’s trading is predominantly emotion-based or momentum-driven, with few of its investors actually believing in the long-term payment potential of SHIB. Presumably, this leaves Shiba Inu’s token price open to wild swings.
And perhaps most problematic of all, Shiba Inu doesn’t offer any competitive advantages. To have a true shot at long-term use, Shiba Inu would need to stand out in some way. However, its processing time, network capacity, and transactions fees aren’t anything to write home about.
It’s impossible to precisely predict when SHIB’s momentum will fade. But with history as our guide, it’s practically a given that this monumental run-up won’t last.
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.