Investors are warming up to the cryptocurrency market once again.
In November 2021, the total market capitalization of all cryptocurrencies in circulation hit a record high of $2.9 trillion. That figure shrank by as much as 72% to just $829 billion in the year that followed, as investors grappled with a wave of high-profile collapses across the industry.
But a recovery is underway, and the crypto market valuation has climbed back about $2.5 trillion, which means a new record high is within reach. More than half of that value is represented by Bitcoin (BTC -0.22%), which has a market capitalization of $1.3 trillion.
Bitcoin has surged 52% in 2024 so far and currently trades at more than $64,000, not all that far from its all-time high.
Bitcoin has been bested by an unlikely cryptocurrency this year
A rising tide lifts all boats, and the renewed positive sentiment toward cryptocurrencies is driving a resurgence in even the most speculative corners of the industry. Meme token Shiba Inu (SHIB -2.49%), for example, is sitting on a whopping 175% gain this year.
However, unlike Bitcoin, Shiba Inu is still trading almost 70% below its all-time high. The token delivered a staggering 45,278,000% gain in 2021, which would've been enough to turn a mere $3 into more than $1 million, but it proceeded to lose more than 90% of its value during the crypto crash of 2022.
So the surge in 2024 is masking a grim broader picture for Shiba Inu, but could it stage another historic run and reach $1 per token from its current price of $0.000028?
Shiba Inu lacks upside catalysts
Cryptocurrencies used to be touted as a viable replacement for traditional money. Truly decentralized coins like Bitcoin have a fixed supply and can't be controlled by any individual or government. It differentiates these cryptos from fiat currencies, like the U.S. dollar, which can be printed as central banks see fit, which devalues them over time.
However, neither consumers nor businesses have adopted cryptocurrencies in any meaningful fashion. A mere 9,428 merchants around the world accept Bitcoin as payment for goods and services, and just 932 accept Shiba Inu. It isn't surprising, because using a currency that can rise in value by millions of percentage points only to then lose 90% of its value would make cash flow management impossible for any business.
Shiba Inu developers have tried to create demand in other ways, by promoting a digital card game called Shiba Eternity and even by creating a metaverse (which still hasn't opened). Last year, they also released a significant upgrade called Shibarium, a Layer-2 blockchain solution designed to make transactions faster and cheaper. (The legacy Ethereum blockchain upon which Shiba Inu is built is clunky and inefficient.)
A Layer-3 solution is also in the works, which will improve the network further and enhance privacy. However, Shiba Inu could have the most advanced transaction mechanisms in the world, but that doesn't mean consumers or businesses will adopt it.
Image source: Getty Images.
The road to $1 will be filled with mathematical hurdles
Even if Shiba Inu can overcome its lack of fundamental upside catalysts, it still has to grapple with a serious mathematical problem. There are 589.29 trillion tokens in circulation, so based on the recent price of $0.000028 per token, Shiba Inu has a market cap of $16 billion.
Simple math dictates that at $1 per token, Shiba Inu would have a market cap of $589.29 trillion. In other words, it would be worth 196 times more than Microsoft, the most valuable company in the world. It would be 21 times more valuable than the entire U.S. economy, which generated $27.9 trillion in gross domestic product last year.
Simply put, there is no way Shiba Inu can rise to $1 in its current state. The community is trying to shrink supply by "burning" tokens, which removes them from circulation forever, but efforts have been futile so far.
Assuming a constant market cap, around 589.25 trillion tokens would have to be burned to justify a price per token of $1, yet just 3.4 million tokens have been burned in the past 24 hours (as of this writing). At that pace, it would take 484,834 years to reach the target. Plus, it won't actually lead to gains for investors -- they would simply own 99.9998% fewer tokens at a higher price of $1 each, leaving the value of their net position exactly the same.
Although Shiba Inu might continue to benefit from the renewed positive sentiment toward cryptocurrencies, investors should be aware that the magnitude of any further upside is completely unpredictable. Therefore, it might be best to stick with industry leaders like Bitcoin in the crypto universe, or, better yet, buy tried and tested assets like stocks!
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
