The case for a $1 SHIB

in #shib3 years ago

TL;DR: There is no such case, but this post is meant to theorize whether this is possible and what are the terms. Please note that nothing in this post is an investment advice.

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First, a cute image of my dog.

What is SHIB (The Shiba Inu Token)? Shiba Inu Token is a decentralized meme token based on the Ethereum network. It was minted anonymously back in August 2020 with a circulating supply of 549,095,509,738,353 tokens. However, some of these tokens are unavailble; on May 2021, Vitalik Buterin, Ethereum's founder, received half of the total SHIB tokens and burned most of it, while liquidating the rest to help India fight Covid-19.

The Shiba Inu "woofpaper" represents how the network and smart contract are to be made and handled. It basically describes certain transactions that allow staking of the token ("bury bones"), therefore lowering the supply.

In the recent weeks, several people who have no experience with volatile blockchain investments have asked about this token as an investment; basically because it is a meme token and got press attention due to its high gains.

The Market. The thing is, that even though SHIB might have a large group of supporters, it currently has no viable use. Unlike bitcoin or other cryptocurrencies, there are currently 109 merchants which accept SHIB as a payment, unlike the tens of thousands of business that accept DOGE or Bitcoin only through bitpay. This means that the current SHIB market cap, of around $40B means that a token that is to be used only with 109 merchants is still underdeveloped, and when the world uses and understands SHIB, it will grow exponentially, right? no. This post is to explain why I'm bearish on SHIB (and other ERC tokens that have no real use), and what should happen to make me change my mind.

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Evgeny Tchebotarev

It's all about the market cap. Ignore for a second the price of a SHIB by itself. The whole issue is market capitalization: how much is the entire economy worth. This means that when you look at a stock to invest, you don't just look at the stock price and if it is low, you invest expecting it to rise. It means that you should look at the entire valuation. Sure, Tesla's stock is currently at $1,200 and is really expensive, but do you think it should ONLY be three times as valuable as Toyota as a company; or do you think that three times more than Toyota is too much?

Even though Tesla is worth (today) three times more than Toyota, a Tesla stock is $1,200 and a Toyota stock is 2,000 JPY, around $17.

How is this possible? because of market capitalization. The number of shares (or tokens in our case) is more important when the calculation is "number of shares times price per share".

So, this though experiment would try to take SHIB to $1.

What would happen at $1? SHIB is currently valuaed at $0.00005, this is 0.005 cents, or 1/200 of a cent and 1/20,000 of a dollar. This means that SHIB at $1 means a x20,000 profit. That's cool, right? but for this to happen, we need to look at the market cap. SHIB's market cap is around $30B, being the 10th most valuable crypto asset in the world today.

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Ok; let's raise the value of SHIB to one cent; just x200 on the profit scale. This means that the entire SHIB economy is worth six trillion USD; just shy of six times the BTC market valuation and just a bit more than Google, Microsoft and Amazon combined.

So for SHIB to be at $0.01 it has to offer something which is more valuable to society than Google, Microsoft and Amazon together.

What does the SHIB smart contract offer? Well, not much. Apart from the staking algorithm, there is no real use for the token, and unlike cryptocurrencies, smart contracts are immutable: you cannot really change the SHIB smart contract to add functionality, unlike Ethereum which is ever evolving.

So, at $6T market cap, this meme token would be at $0.01 and you can make x200 on your money. This is possible, but unreasonable. What would happen at $1?

At $1, SHIB market cap is $600T, x30 the US national debt and x15 the entire cash in the world. Not just that, SHIB would be worth more than 8 times the entire market cap of the biggest 500 US companies. If you believe this is possible, I have a bridge here to sell you.

Transaction costs? The next thing to consider is the transaction costs. SHIB is based on the Ethereum network. So, every transaction requires a payment to the Ether gods to process. Currently, between $0.15 to $0.4; so, to spend one SHIB at $1 you need to pay a %20 fee. Unlike Bitcoin and Litecoin, that have a second layer for microtransactions, and Doge that has low transaction fees, the SHIB network cannot rule and govern its own transaction fees. More than that, you need to buy a different coin to pay for this Token's transactions. So, if SHIB would be the world currency and is used by everyone, Ether would grow as much as SHIB would.

So, to conclude, I don't see a case for SHIB at $1. The reason is that if SHIB is at $1 and leads the world in payments, it is still more valuable than the US economy in a whole. It is just almost impossible.

I don't own any SHIB and don't think of this post this as an investment advice.