As I write this, Shiba Inu (CCC:SHIB-USD) features the strongest return among cryptocurrencies ranked in the top 20 by market capitalization over a trailing seven-day basis and it’s not even close.
Up nearly 52%, you’d have to get into some kooky stuff before finding a digital asset with the same or better performance.
Naturally, the question comes up, what gives?
With little community or development-driven news to go on, I initially felt it was the sympathy of speculation effect.
Since other cryptos have skyrocketed to near-term heights — reversing some ugly losses over the past month — it was only natural that the meme-coin Shiba Inu join in on the fun in the most extravagant manner possible.
However, 52% seemed like a lot given that many other top-ranked cryptos were printing 20% or less. Then, I came across information about an upcoming Shiba Inu coin burn event set to occur on Valentine’s Day.
The goal is to destroy more than 162 million SHIB tokens.
For those who are unfamiliar with the methodology, “burn” in this context means to send Shiba Inu to an unretrievable wallet address. The SHIB tokens are not so much destroyed as sent to the blockchain version of perdition.
They exist but only a deity could extract them from the bottomless pit.
Of course, the follow-up is, why bother doing something like that?
In theory, by removing coins from the available supply of Shiba Inu, you make each unit in human hands that much more valuable.
It’s not much different from a stock buyback: by limiting supply, each outstanding stock is now worth the added ratio of distributed depletion.
On a simplistic level, it makes sense for SHIB proponents to do this. However, such actions detract from the point of value creation.
Supply Is Only One Aspect of Shiba Inu
I suppose that Shiba Inu is in some ways an act of genius within the crypto space.
Whereas other blockchain projects started off with an algorithm designed to forever limit the available supply of the underlying coin or token, SHIB is the reverse of this intuitive linear protocol.
Rather than start off with one and move its way toward a predetermined ceiling, Shiba Inu started off with trillions of tokens (from what I understand). From there, the community consensus can wean off supply as they see fit, thus burning tokens.
Heck, when you have trillions, what’s burning a few hundred million?
While an intriguing idea, we’ve got to consider the privilege that the SHIB community enjoys to feel compelled to burn tokens in the first place. That, my friends, is the real discussion about value creation.
It’s appropriate that with rising demand, its blockchain proponents spark supply reduction for the benefit of its present stakeholders.
However, what drove people to SHIB in the first place is what really matters, not necessarily how much supply there is.
Looking at the Bigger Picture
While the above point might seem like an obvious statement to some, I’ve witnessed more than my fair share of questionable talking points to compel me to stress the point: supply and demand is just one aspect of the valuation picture.
Otherwise, the overwhelming supply of the U.S. dollar may lead to the destruction of the American economy.
Likely, that’s not going to happen anytime soon because the dollar is in great demand, irrespective of its gargantuan supply.
On the flipside, there are currencies of microstates that have very limited supply but also, very limited demand. Again, you can’t just look at one component of the narrative.
So, enjoy the rally in Shiba Inu if you happen to be a stakeholder. Just don’t forget that burning coins doesn’t make SHIB fundamentally better.
The underlying architecture will still need to be relevant, irrespective of the supply situation.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.