In the last 24-hours, Shiba Inu (SHIB-USD) is the biggest gainer among the top-20 cryptos by market capitalization. Currently, Shiba Inu trades higher by almost 17%.
There are two reasons supporting the rally. First, Robinhood (NASDAQ:HOOD) announced that it will be listing four new crypto assets. This includes Shiba Inu, Compound (COMP-USD), Polygon (MATIC-USD) and Solana (SOL-USD). Trading on Robinhood app is likely to boost the meme tokens adoption and price action.
Another reason for the rally is the projects entry into metaverse last week. Shiba Inu launched their own metaverse with over 100,000 land plots. As an incentive, the owners of land in SHIB-USD will be able to generate passive income, gather in-game resources, and generate rewards.
It’s worth noting that even after the recent news-based rally, Shiba Inu token is still about 66% below its all-time high. To some extent, there seems to be a desperate attempt to create a wider ecosystem and diversify to attract investors. Shiba Inu is already into decentralized finance (DeFi) with Shiba Swap, which currently has a total value locked (TVL) of $130 million.
This is contrary to Dogecoin (DOGE-USD), which simply exists as a digital meme currency. The biggest advantage Dogecoin has is the continued support of Elon Musk.
Also, in terms of downside risk for Shiba Inu, there is one macroeconomic factor to consider. Multiple rate hikes are due in 2022. This will imply relative tightening of liquidity in the global financial system. Speculative money will decline on a relative basis. This will impact price action in tokens that have low utility. The challenge for the cryptocurrency world is already evident in Bitcoin (BTC-USD), which is struggling around $40,000 levels.
I also strongly believe that Shiba Inu is unlikely to repeat the euphoric rally. At best, there will be intermediate surges that will provide investors with a good trading opportunity. A market capitalization of $15 billion for a meme token still seems like a bubble.
Also, diversification into hot segments like metaverse or DeFi does not necessarily imply upside in market capitalization. I would look at pure-play projects for better returns.
On the date of publication, Faisal Humayun did not hold (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.