Is Shiba Inu a buy? This one metric holds the answer

Burn rate is a crucial metric for understanding how Shiba Inu can ever address the massive imbalance between supply and demand.

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A cute shiba inu dog is pictured in close up with his face looking quizically sweet.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Shiba Inu (CRYPTO: SHIB) skyrocketed to fame as a popular meme coin with little to no intrinsic value. You simply bought the coin because it featured a cute dog as a mascot, and it only seemed to go up in value.

For an almost comically low price of $0.000012, you, too, can still own a cryptocurrency with seemingly unlimited upside potential. But there is just one problem: The cryptocurrency launched with a massive supply of one quadrillion coins (a one followed by 15 zeros).

To put that into perspective, the current circulating supply of Ethereum (CRYPTO: ETH) is 122 million coins. The maximum total supply of Bitcoin (CRYPTO: BTC) -- ever -- will be 21 million coins. It's evident that Shiba Inu has a problem with oversupply -- one quadrillion is an insanely high number. There's too much supply of Shiba Inu and not enough demand. Until it dramatically reduces the number of coins, its price has limited upside potential. 

Burn, baby, burn

For that reason, I've increasingly come to realize that there is only a single metric that should be used to value Shiba Inu: burn rate. This refers to the rate at which users are burning Shiba Inu tokens. The higher the coin burn rate, the better.

"Burning tokens" does not imply that people all over the world are holding massive bonfires. It simply means they are permanently removing tokens from circulation by transferring them to a "dead" wallet where the private cryptographic keys have been thrown away. 

Looking at the total supply of Shiba Inu today, you might be puzzled to see a figure of 589.6 trillion coins. That would seem to imply that 410.4 trillion coins have already been burned. But that's really due to the efforts of a single person, Vitalik Buterin, co-founder of Ethereum.

The anonymous founder of Shiba Inu, known as Ryoshi, sent Buterin nearly half the supply of Shiba Inu as a gift back in 2020. Buterin promptly turned around and burned 410 trillion tokens. And it wasn't easy, either. Burning that much worthless digital currency actually requires quite a bit of planning.

Shiba Inu burn calculations

Luckily, there are now publicly available sources that let you know how much Shiba Inu is being burned these days. According to estimates, 300 million tokens were burned in the first week of September alone. In one spectacular 24-hour period, over 100 million tokens were burned. In September, the average burn rate is now 23.67 million Shiba Inu tokens per day, which is up more than 138% from the average daily rate in August. 

No matter where you look these days, it seems like people are talking about ways to burn Shiba Inu. They have realized that an initial circulating supply of one quadrillion coins has devalued the currency. Burning is the only way to bring supply and demand back into balance.

The logic is simple: More Shiba Inu has to burn for it to become valuable. Maybe I'm being too cynical about its future, but it's hard not to see every new project launched by the Shiba Inu community as a clever way to burn tokens and get them out of circulation. 

How much Shiba Inu still needs to burn?

So, the big question is: How much more has to burn before SHIB becomes a buy? Assuming a market capitalization of $7 billion, which is what it is valued at today, if Shiba Inu ever wants to reach the $1 mark, it would have to reduce the total supply to around seven billion coins. But, again, the total circulating supply was so insanely high at launch, that reaching that seven billion mark will be difficult. Shiba Inu would need to burn more than 99% of all its existing coins to get supply and demand back into balance. 

So that's why the only metric that matters anymore is burn rate. I don't want to hear about new apps, new scaling solutions, or new metaverse projects unless they offer new ways to burn tokens.

Once the massive oversupply of Shiba Inu tokens is under control, that's when I might decide to get back into the market for what has become an extremely devalued cryptocurrency.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Ethereum. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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