5 reasons I wouldn't touch Shiba Inu with a 10-foot pole

The hottest cryptocurrency of 2021 appears to have lost its shine.

| More on:
two cute shiba inu puppies are in a basket with one playfulling biting at the side of the other's face.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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

Shiba Inu (CRYPTO: SHIB) hit almost every investor's radar in 2021 after speculators drove it to a 43,800,000% gain for the year. It's one of the greatest returns in the history of finance -- a perfectly timed investment would have turned a mere $3 into over $1 million. 

But the tide has since gone out, and Shiba Inu hasn't evolved to deliver any real use cases. As a result, it has declined in value by 64% in 2022 so far. Despite the steep drop, here are five big reasons I still wouldn't be a buyer. 

1. Shiba Inu is unregulated

The first reason to stay away from Shiba Inu -- and this goes for most cryptocurrencies -- is that it's completely unregulated. Ironically, that's one reason some investors choose to own it, because they feel it keeps them outside of the traditional monetary system. But there can be significant consequences to that approach.

For example, if Shiba Inu tokens are lost or stolen, there's virtually no recourse for the holder whatsoever. On the other hand, up to $250,000 worth of cash in a U.S. bank account is automatically insured by the Federal Deposit Insurance Company (FDIC); in other words, it's guaranteed by the government should anything happen. 

It's probable that holders of TerraUSD, a stablecoin that recently shed almost all of its $18 billion valuation, would have appreciated a government-backed initiative to recover their losses.

2. Regulations are coming

You might think this is contradictory to the first point, but the second reason to avoid Shiba Inu is because regulation is inevitable. After a string of high-profile collapses in the cryptocurrency markets (like the one mentioned above), the U.S. government is more aggressively pursuing new laws to protect investors.

Shiba Inu holders (and crypto holders broadly) will soon lose their ability to remain anonymous, because their brokers and exchanges will be required to report all client trading activity to the Internal Revenue Service for tax purposes beginning in 2023. In addition, the majority of cryptocurrencies likely fit the legal definition of a financial security, which could soon place a heavy compliance burden on brokers and exchanges, and that will increase trading costs for customers.

Put simply, more regulation is a net positive for consumers, but it would also strip away many of the reasons people want to own tokens like Shiba Inu. If the subset of the population who currently find Shiba Inu appealing suddenly no longer do, then it might be the final nail in the coffin for the meme token. 

3. Neither consumers nor businesses want to use Shiba Inu tokens

The ultimate goal of most cryptocurrencies is to become a means of payment that performs better than traditional money. Theoretically, that would ensure sustained price gains because people would constantly be transacting in the tokens, giving consumers and businesses an incentive to own them. But so far, not even crypto market leader Bitcoin (CRYPTO: BTC) has garnered mass adoption, and Shiba Inu is lightyears behind. 

Roughly 7,879 businesses accept Bitcoin as payment worldwide, but a mere 659 accept Shiba Inu, and they're mostly small, obscure merchants. Given the significant return Shiba Inu delivered in 2021, followed by its subsequent collapse in 2022, how many businesses could manage their cash flow if they transacted in such a volatile currency? Probably none. 

As a result, it's unlikely Shiba Inu's merchant base will grow materially anytime soon.

4. Shiba Inu has a supply problem

Now that it's been established that Shiba Inu is merely a speculative plaything, here's the fourth reason I wouldn't touch it with a 10-foot pole: It's not even good at that. There are currently 589 trillion Shiba Inu tokens in circulation, which is why they trade at a price of $0.000012 each instead of something more typical, like $1. 

If Shiba Inu did trade at $1 per token, it would be valued at $589 trillion, making it the most valuable asset on Earth. It would be worth 235 times more than iPhone maker Apple Inc. (NASDAQ: AAPL), which is currently the largest company in the world, with a market capitalisation of $2.5 trillion. 

Shiba Inu's enormous supply is therefore a barrier to it ever reaching a significantly higher price per token. As speculators have slowly realized the token is likely mathematically banished to a life with five zeros in front of its price, they've gradually stopped calling for further meteoric price increases to $1 and beyond. 

5. I'm not feeling the burn

To solve the above supply issue, the Shiba Inu community is working together to remove tokens from circulation by "burning" them, which organically increases the price per token. This happens by sending tokens to a dead wallet where they can never be accessed again. The easiest way to participate is to simply send tokens to the aforementioned wallet, but that's no fun.

Shiba Inu holders can also listen to a specific music playlist where the royalties are partially burned, or they can buy coffee from the Shiba Coffee Company, which burns some of the proceeds. Then there's the new Shiba Inu metaverse, where users who purchase virtual land using the Ethereum (CRYPTO: ETH) cryptocurrency can pay a fee in Shiba Inu to rename their plots and, you guessed it, that fee is burned. 

But the burn rate has been incredibly slow so far. If holders are hoping to see their tokens reach $1 through the burn mechanism, they might be waiting more than 10,000 years. And, even if it gets there, it won't change the value of their holdings. Each Shiba Inu investor will simply own fewer tokens at a much higher price, so the net worth of those tokens will remain exactly the same.

Therefore, while this feels like a positive solution, it will have little real impact for investors.

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

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Bitcoin, and Ethereum. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple, and has positions in and has recommended Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A man looking at his laptop and thinking.
Share Gainers

Should I buy Nvidia stock as an Australian investor?

Many Aussies are thinking of jumping on the bandwagon, but they need to think about these issues first.

Read more »

Digital rocket on a laptop.
Broker Notes

Is the Nvidia share price on course to reach US$1,400?

You betcha, says one analyst.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Could Nvidia become the most valuable stock on earth?

Can anything stop the Nvidia stock price?

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
International Stock News

What can ASX investors learn from Warren Buffett's latest buys and sells?

We've just found out what Buffett's been buying and selling recently.

Read more »

electric vehicle such as Tesla being charged at charging station
International Stock News

Why Tesla stock tanked in January

Will the electric vehicle leader see earnings decline once again in 2024?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Will Nvidia stock be worth more than Microsoft by 2030?

The graphics giant has been growing at a much faster pace than Microsoft, but can it sustain that momentum?

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Stock-split watch: Is Tesla next?

Stock splits are fun. But how much substance there is in Tesla splitting its stock is debatable.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
International Stock News

Yes, Microsoft is a star AI stock, but this is what really powered its solid second-quarter results

Deep involvement with artificial intelligence (AI) has made the company popular with investors, but that isn't (yet) the top motor…

Read more »