1 Catalyst That Could Help Shiba Inu Catch Fire

Key Points

• Shiba Inu has not enjoyed the same success as many other cryptos this year.
• Shiba Inu is largely viewed as a meme token that lacks real-world utility.
• But there is one catalyst that could help the token take off, although it is far from a certainty.
• 10 stocks we like better than Shiba Inu ›

Shiba Inu (CRYPTO: SHIB) has been a top cryptocurrency since it sprung to life in 2020, but that's largely because of its cult-like following on social media as one of the major meme tokens. Many investors still don't take the token seriously because it lacks a real use case or technical advantage over any of its peers. Still, there is one catalyst that could help Shiba Inu catch fire.

Could a negative eventually become a positive?

Shiba Inu has never had a lot to offer from a use-case perspective, aside from its fervent community on social media that has made it a top 20 cryptocurrency by market cap. Shiba Inu started as an ERC-20 token, meaning it was developed on the Ethereum network and abided by a set of principles that any token wishing to operate on the network must follow.

Image source: Getty Images. In 2023, Shiba Inu launched Shibarium, a Layer-2 solution on Ethereum to help ease congestion issues on the network. Shibarium essentially lets Shiba Inu settle transactions off of Ethereum's network, which is intended to scale the Shiba Inu ecosystem and make transactions cheaper. The Layer-2 solution has also led developers to start building decentralized applications on Shibarium, offering more utility than it once had.

Like many cryptocurrencies, one issue with Shiba Inu is its large supply of tokens, which makes it difficult to benefit from any kind of supply-and-demand dynamic.

After all, one of the reasons investors love Bitcoin is because there will only be 21 million tokens ever mined. Shiba Inu launched with nearly 1 quadrillion tokens. However, the supply has been greatly reduced. Shiba Inu founder Ryoshi, who remains anonymous, gave 505 trillion SHIB tokens to Ethereum founder Vitalik Buterin, who put most of these tokens in a dead wallet and then donated the rest.

Today, there are 589.5 trillion tokens in circulation, according to CoinMarketCap. Now, that's still a huge amount, but if Shiba Inu can keep reducing total supply over time, perhaps demand will pick up and drive the price higher. Shibarium actually created a burning mechanism, which moves 70% of base transaction fees into SHIB tokens that then get burned and deleted from the total supply. The purpose is to bring down total supply over time.

Still, since the launch of Shibarium, only about 5.5 trillion tokens, or less than 1% of the total supply, have been burned, if you back out the 505 trillion that were given to Buterin.

Story Continues## Can the supply actually decline meaningfully?

Shibarium has certainly made progress in reducing supply and billions of SHIB tokens are being burned each month. But billions doesn't mean much when you are talking in trillions. Many estimates indicate that it will still take many, many years at the current pace to reduce the supply of Shiba Inu to the point where the supply-and-demand balance would become an attractive selling point to investors.

Perhaps Ryoshi can give away more tokens or the burn rate will continue to pick up at an exponential rate that would start to make a meaningful impact, but it's unclear whether this will ever happen.

I will say, I do think the addition of Shibarium gives Shiba Inu more legitimacy than it had as just a meme token. Unfortunately, I don't think it's enough yet to make the token a buy. Shiba Inu is still highly speculative and very risky for investors. However, investors should continue to monitor the situation for improvements to the burn rate and lower supply.

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Bram Berkowitz has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

1 Catalyst That Could Help Shiba Inu Catch Fire was originally published by The Motley Fool

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