It’s been a rough start to 2022 for cryptocurrencies as an asset class. For Shiba Inu (CCC:SHIB-USD) holders, things have been even more depressing.
It’s been the worst for those investors who took a plunge during the peak of euphoria and watched it fall from the highs of October 2021. SHIB is lower by 67% since then.
I believe that there are two reasons for the correction.
First, after excessive speculation, the meme coin was significantly overvalued. It still trades at a market capitalization of $15.5 billion.
Second, the Federal Reserve is considering multiple rate hikes in 2022. Global financial liquidity is likely to tighten on a relative basis. In a contractionary monetary policy scenario, speculative activity declines and Shiba Inu is a good indicator of speculation in the world of cryptocurrencies.
What I expect in the coming quarters is a flow of funds to coins or tokens with strong utility. Speculative coins/tokens will be under-performers. After a big correction, it’s likely that there will be some relief rally for Shiba Inu. However, I fear that the meme coin is likely to remain in a downtrend.
Of course, the Shiba Inu army or community will differ on this view, but that’s unrealistic. A 10-fold surge in SHIB would imply a market capitalization of $150 billion. Ford Motors (NYSE:F) trades at a market capitalization of $72 billion and the company has been delivering healthy adjusted free cash flows.
A meme coin at a $150 billion or even $75 billion valuation is unlikely. I would still bet on multi-fold returns if interest rates remained near-zero levels through 2022.
This is my bear case for Shiba Inu. At best, the meme coin is good for trading. It’s not worthy of a long-term investment.
Bull Case Scenario for Shiba Inu
According to data from Crypto.com, there were 106 million cryptocurrency users in January 2021. By the end of the year, that number increased to 295 million.
Crypto.com is bullish for 2022 and believes that the number of crypto users will increase to one billion by the end of the year.
The projections seem optimistic. However, even if crypto users double from 2021 levels, there is a strong case for SHIB trending higher.
New crypto investors, in general, look for some of the top-ranked projects in terms of market capitalization. It’s like investing in a blue-chip stock.
SHIB is still among the top 15 listed coins/tokens. Wider crypto adoption is likely to increase the number of Shiba Inu holders. Again, this might not translate into multi-fold returns. However, there will be trading opportunities that deliver 20% to 30% returns at the blink of an eye.
Shiba Inu has also been expanding the project utility. As an example, Shiba Swap currently has a total value locked of $216 million. The platform allows users to trade tokens and NFTs.
Additionally, users can provide liquidity to earn BONE. The latter is a part of the Shiba Inu ecosystem and has a supply of 250 million tokens. BONE offers a current APY of 104.82%.
Another positive catalyst for SHIB is wider acceptance as a currency. Just for December 2021, ten companies have accepted Shiba Inu as a payment method. Considering the popularity of the meme coin and a steady growth in holders, it’s likely that more companies will accept Shiba as a payment method.
Concluding Views
I am not a big fan of meme coins. However, I have traded Dogecoin (CCC:DOGE-USD) and Shiba Inu on multiple occasions. These two coins might survive, but it’s unlikely that the market capitalization will witness a multi-fold increase from current levels.
Considering the deep correction in the recent past, some exposure to Shiba Inu can be considered. However, as a crypto investor, I would gradually move away from speculative coins/tokens to strong use-case projects.
On the date of publication, Faisal Humayun did not hold (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 InvestorPlace.com 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.
