This week, Shiba Inu (CCC:SHIB-USD) leapfrogged both Dogecoin (CCC:DOGE-USD) and SafeMoon (CCC:SAFEMOON-USD) to become the most viewed cryptocurrency on CoinMarketCap. Year-to-date, the DeFi token has risen to a $6 billion valuation as investors have scrambled to find “the next Dogecoin.”
The rise of the self-proclaimed “Dogecoin Killer” has confounded many — Shiba Inu has only one-fifth the holders that Safemoon has and runs on the far more expensive ERC-20 standard. Buyers can spend almost $20 to acquire $50 worth of SHIB.
Yet, investors don’t seem to care. These details seem irrelevant in a year in which people have turned $8,000 SHIB investments into $9 million. Crypto doubters look like the ones missing out.
The Doge-lookalike party will go on for longer than people think. Much like penny stocks, “Dogecoin Killers” will continue to come and go so long as retail investors see others making crypto fortunes. But when the sugar rush eventually ebbs (as it already has this week), most low-quality cryptos won’t survive. Because when an asset’s only value is its popularity, there’s little holding up the house of cards once a “risk-off” mentality takes hold.
That means Shiba Inu finds itself in a race against time. If it can drum up enough interest before the bottom falls out, there’s nothing stopping it from eclipsing Dogecoin one day. But given the odds, make sure to take profits along the way.
Shiba Inu: The Makings of a Meme
Shiba Inu tokens started much like other meme tokens and coins — it was supposed to be a joke. The crypto’s whitepaper — humorously titled the “Woof Paper” — outlined a token that looked much like Dr. Strangelove’s Doomsday Machine. By sending 50% of their total token supply to Ethereum (CCC:ETH-USD) founder Vitalik Buterin, SHIB’s community highlighted the absurdity of “rug pull” tokens where developers retain a virtual self-destruct button.
“There is no greatness without a vulnerable point and as long as VB doesn’t rug us, then SHIBA will grow and survive,” the Woof Paper proclaimed.
As SHIB coin prices continued to rise, however, Mr. Buterin found himself in an awkward situation. The gift was undoubtedly unwelcome; the Russian/Canadian programmer would later post an on-chain plea to “PLEASE DO NOT GIVE ME COINS OR POWER IN YOUR PROJECT WITHOUT MY CONSENT.”
But Mr. Buterin’s Doomsday Machine keys — including those to Akita Inu, mwDOGE, OurSHIB and Dogelon — made him worth well over $10 billion. The sums had become too large to ignore.
The drama came to a head last week when Mr. Buterin donated 10% of his SHIB stake to charity. Within days, SHIB coin prices would fall 50%. Other Doge-themed coins saw even more significant tumbles.
Ethereum Founder Vitalik Buterin Sends a Lifeline
SHIB coin investors may still have the last laugh, at least in the near term. On Sunday, Mr. Buterin did an about-face and burned the remaining 90% of his SHIB tokens. The destruction of nearly $7 billion worth of tokens sent SHIB prices up almost 25%. For the first time in its existence, Shiba has a route to true decentralization.
Its popularity has also continued to grow. The token now counts 400,000 holders, up from 289,000 last week. And its 417,000 followers on Twitter (NYSE:TWTR) make it one of the most-tracked cryptocurrencies on social media. It’s a token that, for all practical purposes, could become the next Dogecoin.
From a technical standpoint, SHIB is also starting to look like its older canine-themed cousin. It’s initial gag — the 50% donated to Mr. Buterin — has been laid to rest, much like Dogecoin’s one-billion mining joke reward system. The promised launch of ShibaSwap, a DeFi exchange, could turn Shiba’s stable of crypto tokens into viable mediums of payment.
The Long-Term Picture: Cloudy with a Chance of Disaster
However, none of this overcomes the original sin of all cryptocurrencies: Virtually all cryptos perform the same task. Peek under Dogecoin’s hood, and you’ll find an engine that looks indistinguishable from Litecoin (CCC:LTC-USD); the two coins share so much code that crypto miners can process both simultaneously. ShibaSwap similarly will look much like DogeDex or Uniswap — DeFi exchanges that allows users to swap between cryptos.
In the short run, many newcomers will emerge as short-term winners. Like new tech firms in 1999, virtually all usable cryptocurrencies have the chance to become the next Amazon (NASDAQ:AMZN) of digital finance. In turn, that means even marginal cryptos can get priced as potential winners; studies have long shown that investors don’t follow expected behavior when faced with large historical returns.
However, as the actual crypto winners eventually emerge, the losers will collapse. There’s little reason for the world to have almost 10,000 cryptocurrencies and 700,000 DeFi tokens when a dozen will do. That makes SHIB more like a lottery ticket than a slam-dunk investment.
E-commerce saw a similar shakeout in the late 1990s. Of the 1,400 online marketplaces counted in 1999, only 31 survived. And much like their forbearers, it’s hard to know today whether SHIB coin looks more like Amazon or Boo.com.
Investors can still buy in — Bitcoin’s (CCC:BTC-USD) slide this week has sent the prices of all crypto spiraling. But don’t bet the farm. With so many identical cryptos in the race, it’s anyone’s guess which ones (if any) will eventually prevail.
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.
