Recent events, along with a little research and common sense, illustrate why investing in Shiba Inu (CCC:SHIB-USD) is so dangerous. Indeed, recent evidence indicates that my previous characterization of the cryptocurrency as similar to a game of “hot potato” is accurate.
More specifically, in the last two weeks, “moving and rumored selling of Shiba Inu by just one person” stopped the cryptocurrency’s previously huge momentum in its tracks. Meanwhile, a provision in a new law could easily start another big slide by the dog currency.
Shiba Inu Tumbled by One Person
At the beginning of November, there were reports that a billionaire owner of Shiba Inu had transferred equal amounts of the coins to four separate locations. In the wake of the rumor, as I noted earlier, the cryptocurrency’s previously gigantic momentum was completely halted.
The episode shows the dangers of investing in a “hot potato” asset like Shiba Inu in particular and the vast majority of cryptocurrencies in general. As a result, any event or rumor which shatters that belief can easily trigger a tremendous amount of panic selling.
To further illustrate the point, let’s take a look at how an asset that is backed by actual, valuable businesses and products would perform in a similar situation. I’ll use Nvidia (NASDAQ:NVDA) as an example.
If there were rumors that a huge, billionaire holder of NVDA stock was going to sell all of his or her shares, the company’s stock price may drop 5%-10% in a day and 10%-20% over a week or two. But it wouldn’t crash almost 50% in two weeks.
That’s not because of a conspiracy or some kind of coincidence. It’s because those who own the lion’s share of NVDA stock have not just bought it because they think that it will be a “moonshot.” Rather, they know that the company has huge sales, is growing rapidly, and a very bright future.
Tax Change Could Trigger a Decline in All Cryptos
Tucked into the infrastructure bill that was recently signed into law is a provision that could have a major impact on Shiba Inu and all other cryptos.
Specifically, the law will force crypto exchanges to report all crypto purchases and sales to the IRS. As a result, all buyers and sellers of cryptos will have to report all of their transactions to the IRS.
That, in turn, will force many people to pay taxes on their crypto gains for the first time. As a result, cryptos could become much less attractive for many people.
Additionally, the IRS could potentially find multiple ways to make investing in cryptos less pleasant. The agency could, for example, create particularly difficult reporting rules and ask crypto investors many questions about their transactions.
Taken together, these factors could stifle demand for cyrptos, resulting in price drops that may send many investors into “panic-selling” mode. And that panic selling could cause the currencies to plummet.
The Bottom Line on Shiba Inu
The potential sale of Shiba Inu coins by an unnamed billionaire and the subsequent retreat of the crypto indicate that it’s a traditional bubble.
Meanwhile, changes in tax law and new IRS rules could greatly lower the demand for cryptos, causing Shiba Inu and many of its peers to plummet.
Given these points, I continue to urge investors to sell Shiba Inu.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Plug Power. You can reach him on StockTwits at @larryramer.