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2 Reasons to Sell Shiba Inu

Up over 11,000,000% since its August 2020 debut, Shiba Inu's (CRYPTO: SHIB) rally is likely one of the fastest of all time. But while the hyped-up cryptocurrency has made many people rich, it has all the hallmarks of a bubble soon to pop. Let's explore the reasons why investors should consider jumping ship before it's too late.

1. The rally is speculative

Shiba Inu is a decentralized cryptocurrency token created anonymously by an entity known as Ryoshi. Presumably, it aims to satirize Dogecoin --another meme cryptocurrency, which uses the image of a Shiba Inu dog in its branding.

The coin's surge in popularity started with tweets from Tesla's CEO Elon Musk, who adopted a Shiba Inu breed puppy in October. Shiba Inu also got a boost when popular cryptocurrency exchanges like Binance and Coinbase Pro added support for trading.

Image source: Getty Images

Shiba Inu now boasts an $11 billion market cap, making it the 20th-largest cryptocurrency on the planet, according to data from Coinmarketcap.com. It is piggybacking off the hype of Dogecoin, which has also enjoyed a substantial rally this year, soaring over 5,000% year to date to a valuation of $33 billion.

Both assets seem to rely on the "Greater Fool Theory," which suggests most people buy them hoping to sell to someone else (the greater fool) for more in the future without considering fundamentals or real-world usefulness. This is a precarious situation because it is only a matter of time before the hype subsides and the number of investors taking profits outstrips the number of people willing to buy in.

It's tempting to think "this time will be different," but almost 400 years of economic history tells us that is rarely the case.

2. Shiba Inu brings nothing new to the table

Shiba Inu is an ERC-20, which means it is a digital token based on the larger Ethereum network. According to its whitepaper, which is sarcastically titled the "Woofpaper," Shiba Inu is largely focused on creating a community, which it dubs the "ShibArmy." The developers also prioritize Shiba Inu dogs and are actively searching for opportunities to help them in the real world.

On the financial side of things, Shiba Inu has made some progress. In July, its developers launched ShibaSwap, a decentralized exchange (DEX) that allows investors to trade and stake Shiba and other crypto pairs. The DEX also features non-fungible token (NFT) trading and two additional native assets called Bone (CRYPTO: BONE) and Dogecoin Killer (CRYPTO: LEASH) But decentralized exchanges are nothing new, and this scarcely justifies the asset's 11,000,000% rally.

Minimizing risk in an uncertain asset class

Cryptocurrencies are a uniquely risky asset class because they can't be valued based on earnings or cash flow. But crypto investors can minimize uncertainty by betting on coins with strong brands (because of their first-mover advantages or respected development teams) and innovative use cases. Shiba Inu has neither characteristic yet, which could expose it to greater downside pressure over the long term.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ethereum. The Motley Fool has a disclosure policy.


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