The cryptocurrency sector is as vast as it is complex. There now are more than 20,000 tokens for investors to choose from. Most of these remain unproven, providing little in the way of practical utility for users.
Many investors, inside and outside the crypto sector, have criticized Shiba Inu (SHIB -3.11%) for just this reason. It's a meme token that, like others before it, has relied on marketing and hype, sending valuation to unbelievable levels.
In 2021, this token briefly provided investors with an annualized return of more than 40,000,000%. Essentially, a perfectly timed investment (which no one made) held to the absolute peak (which again is impossible) could have turned an investment of $100 into a multimillion-dollar holding. Those sorts of returns are exactly what many speculators sought, leading to an incredible rise in value to the point that Shiba Inu became one of the top 10 digital currencies by market capitalization.
The party has ended, and the token is down nearly 90% from its 2021 peak. That said, it still is the 15th most valuable crypto and some enthusiasts still call for $1 price.
Let's see if that's even possible.
Currently, more than 589 trillion Shiba Inu tokens are in circulation. The token's price of around $0.00001 at the time of writing translates into a market capitalization of roughly $6 billion. Accordingly, at its all-time high, Shiba Inu had an implied valuation of nearly $50 billion (factoring in token inflation to today).
If Shiba Inu were to, theoretically, surge to the $1-per-token level, that would imply a valuation of a little more than $589 trillion. And that would make Shiba Inu the most valuable asset globally by a wide margin. Just for context, global global gross domestic product was $96.5 trillion as of 2021.
Those who apply any sort of fundamental mathematics to their valuation models will see that such a valuation is impossible to obtain. The only way it could reach $1 would be a gargantuan reduction in the total supply of Shiba Inu tokens, and at the moment there's no effective mechanism for doing that.
Shiba Inu has had big price swings in the past week, in line with the optimistic outlook for crypto. At the time of writing, Shiba Inu is up nearly 18% on a year-to-date basis. As one of the more volatile tokens, Shiba Inu has seen larger fluctuations than the overall market but has generally moved in a similar direction to the upside or downside.
This past week, Shiba Inu did see an outsized move higher on bullish sentiment building around the expected launch of its Shibarium public beta. Investors hope this Layer 2 solution will improve the Shiba Inu network's scalability, allowing for faster and more affordable transactions for users.
Currently, Shiba Inu provides little in the way of meaningful utility for users. This is a project with a very prominent community, and it has proven its value as a vehicle for investors to play momentum-driven meme rallies. However, outside of Shibarium and a few other projects (such as Shiba Inu's move into the metaverse), there's little to point to as a fundamental driver for this token to rise significantly above its previous all-time highs, considering those highs were achieved at a time of extreme bullishness in the market.
Given that Shiba Inu is among the most difficult assets I've come across to value, it's hard to say what this token should be worth. Like many digital assets, attempting some sort of fundamental valuation modeling is near impossible. These aren't assets that represent access to cash flows, and in most cases, they don't have viable business models. That's certainly the case with Shiba Inu.
While it's hard to pinpoint what Shiba Inu should be worth today, it's much easier to identify levels at which this token will never trade. The $1 level is out of the question so long as the laws of finance hold true.
Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.