Up 63% year to date, Shiba Inu (SHIB -0.47%) has been on an impressive rally. This year has so far proved to be terrific for cryptocurrencies as investors regain optimism about a possible soft landing in the economy.
However, can the token’s excellent performance and growing valuation continue over the long term? Let’s discuss.
What is Shiba Inu?
Founded in 2020 by an anonymous individual or group called Ryoshi, Shiba Inu is a meme coin designed to compete with its rival Dogecoin. It hearkens back to Dogecoin’s dog-themed branding and Tesla CEO Elon Musk’s pet dog, which is a Shiba Inu.
As a meme coin, it was not initially designed to introduce technological advancements to blockchain technology. But Shiba’s developers made efforts to differentiate the token in this increasingly competitive space.
Unlike Dogecoin, which is a stand-alone blockchain, Shiba Inu is a token built on the larger Ethereum network. This gives the developers the flexibility to create more uses.
In 2022, the team announced plans to build a metaverse called SHIB: The Metaverse. It’s meant to allow users to play games, trade, and socialize within a virtual world based on Shiba Inu. The platform is already conducting early access sales of virtual real estate, called “land”, which will allow individual users to customize their corner of the experience. But surprisingly, the ‘land’ is only purchasable with Ethereum’s native token, ETH, along with another asset called Doge Killer. So investors shouldn’t expect this project to create meaningful demand for SHIB tokens until it becomes more sophisticated.
What is behind the latest rally?
Shiba Inu’s current rally probably has little to do with asset-specific fundamentals. As a whole, the cryptocurrency market is incredibly sensitive to macroeconomic conditions and liquidity in the economy. And in 2023, digital assets are following stocks upward as investors become optimistic that falling inflation could encourage the Federal Reserve to ease its hawkish monetary policy and avoid triggering a recession.
Image source: Getty Images.
In late 2021, Shiba Inu capped a rally of over 60,000,000% in less than a year, perhaps one of the fastest asset price increases in recorded history. This track record of volatility likely makes it more attractive to speculative cryptocurrency traders who want to make money fast.
That said (with the exception of the metaverse project under development), Shiba Inu has no notable real-world use cases that can support SHIB token demand over the long term. It is too volatile to be useful as a store of value or medium of exchange. And it doesn’t boast advantages in speed or transaction capacity. Its technical capabilities are based on Ethereum because it is programmed on Ethereum.
Can Shiba Inu hit $10 billion?
With its current market cap of $7.7 billion, Shiba Inu would have to jump by almost 30% to hit a valuation of $10 billion. And in the course of a year, this is easily achievable considering its extreme volatility and the possible easing of macroeconomic conditions as inflation falls. As a relatively small asset, it is more likely to post huge gains than larger rivals are, and its burgeoning brand recognition could help it stand out from other meme coins.
That said, investors should remember that Shiba’s rally is mainly speculative, not fundamental. And it might not be able to maintain its value as well as more established cryptocurrencies over the long term. Shiba Inu is still down a whopping 84% from its all-time high, reached in October 2021. New investors should be careful not to be left holding the bag if the latest rally ends in a similar fashion.
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ethereum. The Motley Fool has a disclosure policy.
