Shiba Inu (CRYPTO: SHIB) once reigned as the most talked about cryptocurrency on the market. In 2021, Shiba Inu skyrocketed close to 46,000,000%.
Last year, though, the digital token crashed -- along with most other cryptocurrencies. But like the mythological phoenix rising from the ashes, Shiba Inu is soaring in 2023 so far. How much higher can it go?
Why Shiba Inu is up
Shiba Inu's gain of more than 40% year to date isn't due to gazillions of tokens being burned. It's not because SHIB has gained widespread adoption as an alternative for buying goods and services. The nice return isn't even the result of anticipation about the launch of the Shibarium layer 2 protocol.
Instead, Shiba Inu is up so far in 2023 primarily because of one reason. And that reason is the key driver for many other cryptocurrencies this year as well. The bottom line is that investors have started to become willing to take on more risk.
There are several factors that have contributed to investors shifting to a less risk-averse stance. Inflation appears to be cooling off somewhat. The U.S. economy continues to perform relatively well. Unemployment remains low.
Shiba Inu has outperformed several other top cryptocurrencies so far this year. For example, Dogecoin (CRYPTO: DOGE) is up a little over 20%. Even "blue-chip" cryptocurrencies such as Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) lag a little behind Shiba Inu. But the improving risk outlook is still the main catalyst for all of these cryptocurrencies.
How much higher?
The strong start this year could lead to irrational exuberance. No, Shiba Inu won't reach $1 in 2023. It's highly unlikely to hit $0.01. However, it is possible that Shiba Inu could still move much higher in the coming months.
That aforementioned launch of Shibarium certainly could spark increased interest in Shiba Inu. There's a lot to look forward to with the new layer 2 blockchain, including increased speed, greater scalability, and lower transaction costs.
Shibarium could also pave the way for trillions of tokens to be burned. The laws of supply and demand work for cryptocurrencies just as they do for other products. If the supply of SHIB tokens is lowered significantly while demand at least stays at the same level, the price will increase.
But what's a realistic projection of how much higher Shiba Inu could go? It's probably fair to say that we won't see another jaw-dropping return like the one in 2021. The dynamics are much different now than they were then.
Perhaps the best guess is that Shiba Inu could deliver similar returns as some of the other top cryptocurrencies have in previous years after they entered the investing mainstream. For example, Bitcoin jumped 85% in 2019. It was already well-known by then. This impressive gain came before the massive spike in interest in cryptocurrencies we saw in 2020 and 2021, a phenomenon I don't think will be repeated this year.
However, Shiba Inu could skyrocket much more than that. That could especially be the case if there's an aggressive burning campaign after the introduction of Shibarium.
Why Shiba Inu could go back down
We also need to acknowledge the real possibility that Shiba Inu won't go higher at all and will instead fall. There are many factors that could cause the digital token to sink.
One top candidate is a lengthy delay in the launch of Shibarium. The blockchain was supposed to have been available last year. However, a technical snag resulted in the launch being pushed back. It's certainly not out of the question that additional technical difficulties could be encountered.
But the most likely reason why Shiba Inu could tumble is if investors again perceive cryptocurrencies to be too risky. Should the U.S. economy enter a recession (which many economists expect) or a geopolitical crisis occur, Shiba Inu would almost certainly return to the doghouse.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.