Shiba Inu (CCC:SHIB-USD) is one of the most popular coins on cryptocurrency exchanges. It surged over 400% recently, hitting a peak market cap of nearly $14 billion before giving away gains. Much like previous rallies, the credit for the surge went to Tesla (NASDAQ:TSLA) CEO Elon Musk. On Oct. 4, Musk posted a photo of his new puppy to Twitter with the name “Floki Frunkpuppy.” Shiba Inu coin prices soared 40% higher in the hours after his post.
The surge is reminiscent of, Dogecoin (CCC:DOGE-USD), which for years was considered an internet meme. However, in 2020 the coin’s popularity skyrocketed thanks largely to Elon Musk. But the perils of celebrity endorsements came to the fore when he made his first appearance on Saturday Night Live. On the show, Musk played a stock expert, the self-proclaimed “Dogefather,” and referred to the coin as a hustle. That was enough to send the asset plummeting.
But in the last few months, things were quiet once again. Investors started to cool off on meme coins and concentrate on alt-coins like Ethereum (CCC:ETH-USD) and Cardano (CCC:ADA-USD), both of which have an impressive list of use cases.
The latest bit of price action further underscores the stop-start nature of meme coins. Sometimes they will do very well. But on other occasions, they can tank. Most troubling, however, is the reason they do well or badly. More often than not, a celebrity tweet or endorsement is what sways investor sentiment, leading to a large rally. Similarly, when a crypto enthusiast like Musk goes after you, a meme coin can suffer heavy damage. These coins lead to a very helter-skelter investing style.
Livin’ on a Prayer
Shiba Inu coin is once again in the news after a few quiet months. We’ve already identified one of the reasons why this rally occurred, but that’s not the sole reason. Basically, when the SHIB “whales” make moves, retail traders follow. And that was the case in this most recent rally.
The recent price momentum is, therefore, a combination of retail momentum and Musk-induced hype. SHIB, which is described on its website as “a decentralized meme token that evolved into a vibrant ecosystem,” will continue to soar if these factors play a part moving forward.
But when you contrast it with alt-coins with Ethereum and Cardano, it becomes clear Shiba Inu is not a long-term investment. For example, Ethereum is in the middle of a major transition to a more efficient proof-of-stake (PoS) system—which is a less energy-intensive and time-consuming mechanism than a proof of work (PoW) mechanism. Meanwhile, Cardano, which is already on PoS, recently implemented a major software release that will allow more seamless transactions and applications. The Cardano blockchain is set to get a big upgrade on Sunday, with their new “alonzo” release bringing more features and applications.
All of this highlights how both these coins are increasing functionality. The same, unfortunately, cannot be said for meme coins like Dogecoin and Shiba Inu. They remain reliant largely on celebrity hype.
Shiba Inu Needs More Use Cases for a Sustained Rally
The recent craze for cryptocurrency investing has led to many people throwing money into the bitcoin and Ethereum markets. But while it’s true that these investments can be lucrative, they also carry some risk. However, they’re still palatable, considering the functionality of these coins.
Cryptocurrencies are a new form of decentralized currency designed to solve real-world problems. They’ve been gaining popularity lately due to their ability to conduct transactions faster and cheaper than traditional methods like credit cards. It is also more secure since there’s no intermediary involved.
However, meme coins serve no real-world purpose right now and were created for the sole reason of making a quick buck—which some people do quite successfully when celebrities promote them heavily online.
Many investors quickly sell meme coins once their prices surge because there’s no real utility for a coin meant only for fun. As soon as they move on from the market and onto another stock or cryptocurrency du jour, your investment will likely plummet with them down into irrelevance at best.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.