The Shiba Inu Bounce Back May Be Just Temporary

So far in February, major cryptocurrencies have been rebounding, after their sharp slide in January. Yet among the names included in the CoinMarketCap top 20, none have seen as big of a spike as Shiba Inu (SHIB-USD).

Up big over the past seven trading days, SHIB has been on a tear. Even when compared to the moderate boosts seen with Bitcoin (BTC-USD), Ethereum (ETH-USD), and with its “pupcoin” forebear Dogecoin (DOGE-USD). What’s behind this?

Unlike some other waves of “Shiba mania,” admittedly this time there are two developments that help explain its big surge. First, more progress with its metaverse plans. Second, news of a token burning (more below), which is set to happen on Valentine’s Day.

When it comes to this memecoin, there’s a big risk of making the wrong call for its next move. Determining where it’s headed next is about as easy as predicting which Powerball numbers will hit the jackpot. But if you take a closer look at the reasons behind its latest rally, it’s hard to be confident that this is only the start of a comeback for this pupcoin.

Shiba Inu and its Recent Jump in Price

Overall, investors are cautiously getting back into crypto. It’s still up for debate whether forthcoming rate hikes point to even lower prices for this asset class (more below). Yet for now, as the market calms down about rate hikes, we are seeing a move back into “risk-on” plays.

Along with the aforementioned developments (metaverse, coin burn), Shiba Inu has been able to see a massive increase in price in a matter of days. Since last week, it has increased in price by over 50%. Compare that to BTC-USD and ETH-USD, which are both only up about 14%, during the same timeframe.

As for Dogecoin? Its rebound has been more of a bark than a bite, with the dog-themed coin that started it all up just 15% over this same period of time. Yet while some may be looking to get in now, in the hopes that Shiba mania, if not pupcoin mania, is making a comeback, if you are in that category, you may want to think twice before buying.

Again, given how it trades, making a definitive call on SHIB one week can leave you eating humble pie next week. Even so, separating the hype from the facts with its recent news, and taking into account potential risks ahead for cryptocurrencies overall? You may want to be careful about chasing its latest rally.

The Truth About its Metaverse and Token Burn News

The metaverse and token burning news with Shiba Inu may explain its latest run-up in price. Is it a justified move?

Not so fast. In the case of the metaverse news, this appears to be an overreaction. The “update” driving its surge was simply an official announcement from the token’s developers about their in-progress Shiba-themed universe, where users will have the ability to purchase virtual real estate.

As for the token burning? In case you don’t know, coin/token burning is basically the crypto world’s equivalent to share buybacks. In burning, coin/token holders “burn,” or destroy, some of their holdings. This reduces the outstanding supply, and in theory should increase the underlying value of each remaining coin or token. Much like stock buybacks, a high amount of coin/token burning can do just that.

But in the case of the upcoming burn, this isn’t going to take a major amount of outstanding tokens out of circulation. Based on past events, this upcoming burn will result in hundreds of millions, or perhaps a few billion tokens getting taken out of circulation. This may sound like a lot, yet keep in mind that there are 589 trillion outstanding. Forget about billions, for a coin burn to really move the needle, one running in the trillions would need to take place.

Beyond the less exciting details of the latest Shiba developments, there is the high level of risk/uncertainty still looming over the crypto space. As I discussed recently when talking about Cardano (ADA-USD), rate hikes could still put more pressure on this space. So too, could potential upcoming regulation from the U.S. Federal Government. Another market-wide sell-off could occur in the near-future, resulting in this token falling back after its recent jump.

Bottom Line on SHIB-USD

As always, if you’re looking to roll the dice, on a “fun” cryptocurrency that could make wild moves. Then by all means, buy a small position and have a go at it. But you may want to tread carefully if you’re looking to make a serious wager on a comeback.

With Shiba Inu, recent developments have been blown out of proportion. Coupled with the risk of another crypto sell off, it’s not worth taking a big chance with it today.

On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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