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3 Reasons the Shiba Inu Bubble Could Burst Any Day

For well over a century, investing in the stock market has been one the smartest ways to get rich. While stocks won't be the top-performing investment vehicle every year, the average annual return for equities trounces the likes of bonds, oil, gold, and housing, over the very long term.

But there's been something of a changing of the guard over the short term. Over the past couple of years, a number of brand-name cryptocurrencies have run circles around the stock market.

In particular, it could be argued that there's no hotter digital currency at the moment than Shiba Inu (CRYPTO: SHIB), which has gained more than 5,130,000% since it made its debut in August 2020 and traded at $0.00000000051 per coin, according to CoinMarketCap.com.

The Shiba Inu dog breed has been the inspiration for two popular cryptocurrencies. Image source: Getty Images.

Why Shiba Inu has soared

To say there's a lot of buzz surrounding Shiba Inu would be a clear understatement. It's a self-proclaimed meme coin that looks to be piggybacking on the hype attached to Dogecoin (CRYPTO: DOGE), which it aims to "kill." Shiba Inu has been a clear beneficiary of crypto investors' love for pet-themed coins, as well as tweets from Tesla CEO Elon Musk that feature his Shiba Inu-breed dog.

Access has been another selling point for the relatively young Shiba Inu. A number of prominent crypto exchanges now allow investors to buy and sell the 20th largest token by market cap, including Coinbase Pro. There's little question SHIB's stratospheric May run-up played a role in putting it on the radar of crypto exchanges. This increased ability to buy Shiba Inu has improved its liquidity and built up its community. Data from Etherscan on Oct. 14 showed nearly 729,000 addresses owned Shiba Inu.

The launch of decentralized exchange ShibaSwap in July 2021 is a third reason Shiba Inu has been creating a lot of buzz. This platform allows "hodlers" to stake their coins to earn interest. While staking is nothing new, it could encourage investors to hang onto their Shiba Inu coins for longer periods of time.

Image source: Getty Images.

The dream run for Shiba Inu may come to a crashing halt

Yet in spite of these catalysts, Shiba Inu could be on the verge of having its bubble burst any day. While it's not uncommon for digital currencies to be volatile, Shiba Inu may wind up losing the vast majority of its value in the months that lie ahead for three reasons.

1. It lacks real-world utility

Arguably the single biggest knock against the crypto markets' hottest coin is its lack of real-world utility.

To be fair, even the most prominent digital currencies have minimal use outside a cryptocurrency exchange. For example, Dogecoin is being accepted by a little over 1,700 businesses worldwide, including movie theater chain AMC Entertainment. But it's taken eight years for Dogecoin to reach this level of acceptance, which is minimal considering there are more than 32 million U.S. businesses and well over 500 million worldwide entrepreneurs.

Compared to Shiba Inu, Dogecoin looks like a broadly accepted digital token. After a little over a year since its debut, online business directory Cryptwerk notes that only 88 mostly obscure companies accept SHIB as a form of payment. This is such a small number that it's fair to suggest Shiba Inu has no real-world use outside of a crypto exchange.

Image source: Getty Images.

2. The average holding period is less than a week

Another reason to be extremely leery of Shiba Inu is the average holding time of six days, according to data from Coinbase.

Given the volatility inherent in the crypto market, it shouldn't come as a surprise that traders are actively looking to dive in and out of their positions for a short-term profit. But for a digital token that's gained more than 5,100,000% since August 1, 2020, a six-day holding period implies that there's nothing truly fundamental or sustainable behind these moves. Rather, emotions and tweets (looking at you, Elon) seem to be the driving forces behind SHIB's movements.

The thing about emotions is they can change at the drop of a pin in the investing realm. If Shiba Inu is unable to maintain the same buzz that's grown its community at a rapid clip, disinterest, as evidenced by its menial average holding period, could quickly undo its massive gains.

Image source: Getty Images.

3. Historically, stratospheric short-term gains don't hold up

Lastly, history is pretty clear that mammoth single-year gains don't stand the test of time.

For example, cryptocurrency mining company Bit Digital (NASDAQ: BTBT) was the top-performing stock of 2020, logging gains of almost 3,700%. Bit Digital specifically focuses on mining Bitcoin (CRYPTO: BTC), the largest digital currency by market cap. With Bitcoin surging throughout the second-half of the year, shares of the company caught fire. But in 2021, shares of Bit Digital are down 51%, which is actually off its low of down nearly 81% in mid-July.

The same can be said for Bitcoin. Even though the largest cryptocurrency by market cap has substantially increased in value over the past decade, it's also endured three pullbacks of at least 80% over that stretch. With the digital currency space reliant on intangible factors, such as emotions and technical analysis, it's easy for highfliers to quickly become yesterday's news.

History suggests Shiba Inu is headed for a massive correction.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.


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