Shiba Inu Needs a Big Catalyst for Trend Reversal

It’s been a year of euphoric rally for Shiba Inu (CCC:SHIB-USD). The meme coin touched all-time highs toward the end of October 2021. However, almost two months down the line, Shiba Inu coin is trading about 62% lower from all-time highs.

A smiling Shiba Inu dog in front of a bright yellow background.
Source: Shutterstock

Even after a meaningful correction, the meme coin commands a market capitalization of $17.23 billion. Can Shiba Inu coin surge higher again?

Before discussing more on Shiba Inu coin, I would like to highlight a few points about Dogecoin (CCC:DOGE-USD).

Dogecoin recently spiked by 20% with Elon Musk tweeting that Tesla (NASDAQ:TSLA) would accept it as a payment for some merchandise. Musk also recently opined that Dogecoin serves as a better currency as compared to Bitcoin (CCC:BTC-USD). A key reason for this being low transaction volume and high cost in relation to Bitcoin.

The point I want to make here is that Dogecoin is not among the coins with a strong use case. It started as a joke. The only factor that keeps Dogecoin going is the backing provided by the world’s richest man. It’s similar to fiat money, which is not backed by any asset. It’s simply backed by government trust.

I would quickly point out here that a survey by Organization for Economic Co-operation and Development indicates that only 51% of citizens trusted their governments in 2020. This data possibly elaborates on the reason for wider cryptocurrency adoption.

Coming back to Shiba Inu coin, I believe that it needs the backing or support of someone like Elon Musk. If Elon were a decentralized government, Dogecoin is his currency. Shiba Inu coin needs a similar catalyst to sustain it.

Fighting for Survival

Gold, as an asset class, would typically surge considering the inflation concerns. However, the precious metal has remained subdued. One reason is massive reallocation of funds to cryptocurrencies as an asset class. In particular, Bitcoin is being increasingly considered as an inflation hedge.

The Federal Reserve has already made its intention clear to accelerate tapering. Further, interest rate hike is on the cards in 2022. There is likely to be relative tightening of liquidity.

Within the cryptocurrency world, it’s about the survival of the fittest. Coins with strong use cases or utility are likely to be safe. However, meme coins are likely to face the heat.

Shiba Inu coin has 1 million holders and wide adoption is a positive. Dogecoin, however, has 4 million holders. On a relative basis, Dogecoin is better positioned to survive. For Shiba Inu coin, the following points are critical:

First, there needs to be more utility that cryptocurrency users see. This will come with partnerships. If the meme coin is accepted as a payment method by one or a few big brands, it could be a game-changer.

Further, Elon Musk talked about transaction cost when comparing Dogecoin with Bitcoin. For Shiba Inu coin to remain competitive, transaction cost has to decline. From a supply perspective, Shiba has an edge over Dogecoin. The former is a deflationary token while the latter is inflationary.

Concluding Views on Shiba Inu

An important point to note is that Bitcoin seems positioned for wider adoption in the coming years. It’s likely that Bitcoin will remain in an uptrend in 2022.

This will support the rally in altcoins. I, however, believe that it would be unrealistic to expect big returns from the likes of Dogecoin or Shiba Inu coin. These meme coins already have a high market capitalization.

At best, it makes sense to consider some exposure to Shiba Inu coin. My personal strategy would be to remain exposed to Bitcoin and Ethereum (CCC:ETH-USD) in a core portfolio. I would further look at emerging coins with a strong use case for 5x to 10x returns at the blink of an eye.

The cryptocurrency world is unpredictable. I might be wrong and Shiba Inu coin could surprise on the upside. However, I don’t see the coin doing another 10x or 20x from here. A market capitalization of over $100 billion for a meme coin is unrealistic unless the markets enter into extreme euphoria.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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