The Little Dog that Could – The astronomical rise of Shiba Inu (Woof)

SHIB is now 11th on the Brave New Coin market cap table. The asset has a higher market capitalization than long-established assets such as Chainlink (LINK), Litecoin (LTC), and the token it claims to be a better version of, Dogecoin (DOGE). Its US$34 billion market cap is larger than corporate giants like Robinhood, Nokia, and Fujifilm.

Over the last 30 days, Google Trends search data indicates that worldwide search interest for the term ‘SHIB’, has been higher than search interest for ‘Ethereum’, ‘XRP’, and ‘Cardano’.

Source: Google Trends

Since the third week of October, the only alt coin term that has been searched for more frequently than SHIB is ‘Ethereum’. SHIB has become the dominant large-cap altcoin for new retail investors.

Source: Google Trends

SHIB search interest is particularly strong in traditional crypto hotspots like China, United States, Singapore, and Turkey.

Another sign of SHIB’s growing position in the minds of retail traders is that the top two mobile cryptocurrency purchasing apps in the world, Coinbase and Crypto.com, both advertise themselves as platforms to buy and sell SHIB.

What is Shiba-Inu?

Shiba Inu (SHIB) is an Ethereum based token built using the platform’s popular ERC-20 token standard. The project was co-founded by the pseudonymous ‘Ryoshi’ who maintains the distinction of never having owned a single SHIB token. The token was launched via a fair launch on decentralized exchange Uniswap. The launch was organized by a group called “Ryoshi Research”. Once the developers finished minting one quadrillion SHIB, they backed this in a pool containing 10 ETH.

Launching tokens on Uniswap is permissionless – this allows any DeFi builder to make use of a popular publicly available trading infrastructure to launch tokens via decentralized smart contracts. More on initial Defi offerings here.

The project takes its name and mascot from the popular Shiba Inu dog breed. Long popular in its native Japan, the breed has exploded into mainstream relevance thanks to recently established links to internet meme culture. Shibas are the basis for numerous popular memes and garner enormous attention on social media. The Dogecoin mascot is also a Shiba Inu.

Shiba Inu was pitched as a ‘Dogecoin killer’ or a ‘better version of Dogecoin’ at its launch. At face value, the two tokens seem appear very similar. They both use dog-based branding, they are both highly community-driven and play into being fun, not serious, and the single denominations of both currencies are ‘cheap’. A single SHIBA trades for 0.00006803, while one single DOGE trades for $0.269904.

The low price psychology is a strategy to attract retail traders to a token project. “I can buy a thousand units for under a dollar, amazing! I’ll buy 10,000 SHIB and if it gets to US$0.1 I’ll be rich,” is the logic used to attract budget-conscious traders.

Low price tokens entice small retail traders looking for ‘moonshot’ coins that can increase by 10,000% in months. This demographic is becoming increasingly less interested in what they perceive as ‘boomer coins’ like Bitcoin (BTC) and Litecoin (LTC) that have already been through multiple price cycles and are now seen as expensive per unit – with less chance for huge price appreciation.

To understand why Shiba touts itself as a Dogecoin killer, it is important to understand the difference between how Shiba Inu is built and how Dogecoin is built.

SHIBA has added utility because it is built on top of Ethereum

Dogecoin was created in 2013 as a fork of the Bitcoin blockchain. It was intended as a joke to show how easy it was for anyone to spin up a cryptocurrency that worked like Bitcoin. Shiba Inu is not a fork of Bitcoin and does not have a native token of a blockchain in the same way that Dogecoin does.

Shiba Inu is instead supported by an Ethereum smart contract. Smart contracts are public on Ethereum and can be thought of like open APIs. Ethereum developers can build decentralized applications that connect smoothly with other decentralized applications, and new utilities can easily be created for new tokens built on Ethereum. These additional utilities built for Shiba Inu is why it has the tag of ‘Dogecoin killer’.

The Shiba Inu token ecosystem includes a decentralized exchange called Shibaswap. The Shiba Inu token has been integrated into the exchange and has given it new functionality, beyond just speculation. There are also two other tokens within the Shiba Inu ecosystem BONE and LEASH, that connect with SHIBA and ShibaSwap to increase potential returns for ecosystem participants.

All the things you can do with Shiba Inu

The LEASH token was initially set to be a rebase token tied to Dogecoin, where price changes of DOGE affect the price of LEASH. This model was scrapped once the token was launched and the token will now have separate utility within the Shiba Inu ecosystem. LEASH is almost the opposite of SHIB in that it has a low circulating supply of 100,000 tokens and a high individual price per token of US$4,232.23. This is intended to give it a different appeal to SHIBA.

The BONE token is the governance token of the Shiba Inu token ecosystem and the team says it will be central to the project’s future DeFi plans.

All of the tokens in the Shiba Inu ecosystem can be either buried or dug. Burying is another term for staking and digging is another term for yield farming. When Shiba Inu users bury SHIBA tokens they earn BONE tokens as a reward. SHIB becomes xSHIB when it is buried or dug and 3% of all BONE per block accumulates into xSHIB. xSHIB also receives 0.3% of all the Ethereum Swap transaction fees that occur on the ShibaSwap exchange.

Digging can be done by adding liquidity to the SHIB-ETH UNI-V2 pools, earning LP tokens and then staking these tokens. Or they can provide liquidity to Shibaswap pools. There is also infrastructure in place for BONE and LEASH tokens to be staked or locked into yield farming programs, where they are converted into tBONE and xLeash.

While the additional added utility offered by the ShibaSwap creates value for the SHIBA token, most of the token’s value appears to be driven by speculation.

The total value locked into the Shibaswap exchange is US$625 million and it is the 71st largest protocol by Total Value Locked. Total value locked (TVL), in the context of cryptocurrency, represents the sum of assets deposited in a decentralized finance (DeFi) protocol. It is a gauge of the size of DeFi platforms and how many users are earning rewards, swapping tokens, and launching new tokens.

Since the token has a market cap of US$34 billion, this gives it a market cap to TVL ratio of 54.4, an extremely high number. In comparison, Curve, the protocol with the highest TVL in DeFi, has a market cap of TVL 0.0858, while Uniswap, the original AMM Dex that ShibaSwap is based on, has a market cap of TVL 2.36317.

While the allocation of SHIBA token into Shibaswap does create utility for the SHIBA token, most of the token’s value comes from speculators.

This may change in the future as Shibaswap is still a relatively new protocol which only launched on July 6, 2021. New buyers of SHIB may begin to use Shibaswap as they look for ways to do more with their passively held tokens, however, when tokens are rising by ~800% a month, there is no rush to start the messy process of locking them into DeFi to try and squeeze yield out of them.

SHIB: A token that pumps for strange reasons

Since its launch, some of SHIB’s biggest price surges have been connected to Tesla CEO Elon Musk’s tweets. On October 4th, Musk tweeted a picture of his Shiba Inu puppy named Floki.

Markets read this as a bullish signal for Shiba Inu and the price of the token rose ~205% over the next week.

After the Shiba Inu token launch, 50% of all SHIBA tokens were sent to an Ethereum address belonging to Ethereum creator Vitalik Buterin. The move appeared to be a marketing stunt by the project. The logic being that if investors see SHIB tokens in a wallet owned by Buterin, they may see this as an endorsement from Ethereum’s most important figure.

What makes the move a little strange is that anyone can send Buterin’s address tokens, they don’t need his permission and he didn’t need to accept the tokens. The transfer didn’t represent any kind of endorsement.

On May 13th, Buterin gave 50 trillion tokens, worth ~US$1.14 billion at the time of the transaction, to the India COVID-Crypto Relief Fund. The fund, which was managed by Sandeep Nahliwal, immediately eased concerns that the tokens would be liquidated, potentially crashing the still nascent Shiba Inu token. He wrote on Twitter “We will not do anything which hurts any community, especially the retail community involved with $SHIB. We will act responsibly! Plz dont worry $SHIB holders.”

Buterin burnt (sent them to an Ethereum address no one can access) 90% of his remaining SHIB tokens. 410 trillion tokens worth ~US$6.7 billion were thus removed from circulation. “I’ve decided to burn 90% of the remaining Shiba tokens in my wallet. The remaining 10% will be sent to a (not yet decided) charity with similar values to cryptorelief (preventing large-scale loss of life) but with a more long-term orientation,” Vitalik explained in a note attached to another transaction.

The Buterin news did not have an immediate impact on the price of SHIB. However, over the coming weeks and months value bled out of the token steadily. By June 14th, a month after Buterin’s token burn and charity donations, the price of SHIB was down by ~63%.

In the long term, however, the connection to Buterin appears to have benefitted the value of the token. Shiba Inu has been able to give the crypto retail community the impression that it is interacting with major names in the world of crypto and legacy finance. This no doubt has continued to attract new users to the project.

A Change.org petition demanding Shiba Inu get listed on Robinhood has received almost five hundred thousand signatures. Robinhood is one of the world’s largest retail stock trading and investment platforms. It is synonymous with large numbers of buyers making small investments hoping to make it big. These retail buyers are more emotional and more driven to react to news events than institutions. SHIBA seems like the perfect token for Robinhood’s user base and it is likely to do very well once listed.

Two of the biggest names in the crypto space, Anthony Pompliano and BitBoy Crypto, had a heated debate regarding SHIBA and it took over Crypto Twitter and Youtube.

Other factors driving the SHIBA price

SHIBA has shown remarkable price resilience over the last year. It has been able to absorb large hits to its value and come back swinging. One of the reasons why it is able to recover from sharp price drops is its consistently high on-chain activity and trading volume.

Source: Coingecko, the SHIB price has consistently found support at the US$0.000006 following a price dump in May 2021.

Data from Santiment indicates that SHIBA is third amongst Ethereum tokens by a number of active addresses, just behind Ether and USDT, but in front of USD-Coin (USDC), Polygon (MATIC), and Decentraland (MANA).

Source: Santiment

In terms of centralized exchange activity, SHIB is the 4th most traded asset in crypto, with around US$7.5 billion in daily trading volume currently. This volume is coming from some of the world’s largest exchanges like Binance, Coinbase, and Okex with a number of different trading pairs for the asset.

This means SHIB is no longer a token where a single whale dumping on a single exchange could destroy the token’s value. The scale of the project has also expanded globally with local reports in India saying SHIBA and Dogecoin are the country’s most traded assets.

Source: Coingecko

Rises in daily active addresses tend to correlate with rises in the price of SHIB suggesting the new users/addresses are bringing new value into the ecosystem. There are consistently over 20,000 active SHIBA addresses a day on the Ethereum network.

There are concerns that with a project like Shiba Inu that some of these active addresses may be linked to bots or fake network activity. Daily active addresses, however, have never dropped below 10,000 in the last six months. This indicates a stable base of users returning to interact with the project outside of spikes in network activity.

Additionally, some of the biggest spikes in active addresses have come after large rises indicating that users were organically driven to join the network after observing price rises.

Source: Santiment

Risks to the SHIBA price

There is, however, a new dark cloud looming over SHIBA markets. The price of SHIBA has been dropping sharply over the past few days and potentially due to concern caused by the second-largest holder of SHIBA, a mega whale, reactivating their wallet and moving around SHIBA coins. The SHIBA holder has 40 trillion SHIB tokens and has recently allocated them into four new wallets. This has created concerns that they may soon dump on the market.

SHIBA has dropped from 9th to 11th on the Brave New Coin market cap table, falling by ~32% since the start of the week.

Despite SHIB being decentralized in the sense that it is held by many users and is traded across many exchanges, there is still the potential for it to be impacted by the actions of a few rich holders or whales. As the chart below indicates, a few transactions of greater than US$100,000 can significantly move the SHIB price.

Source: Santiment

Another factor in SHIBA’s price run up is the potential for a short squeeze. Short squeezes occur when short traders are forced to close their positions (at a loss) due to a sudden price increase. These traders are forced to cover positions quickly, buying underlying assets before the price goes even higher.

If enough shorts are caught in this position, then the subsequent squeeze can have a tangible effect on price. If the squeeze is accompanied by new buying pressure the price of an asset can shoot up.

Shorters, betting against SHIB believing it had topped, were then caught out. This contributed to SHIBA’s aggressive price pickup between October 27th-28th when the price of the asset rose by ~87%.

Data from Coinglass (formerly bybt) indicates that on these two days there were a huge number of short liquidations in SHIB futures markets. This clearly affected the price of SHIB.

Source: Coinglass

Conclusion

The Shiba Inu token has taken the crypto world by storm. While Dogecoin lit a fire under the meme coin/animal coin space, SHIBA has gotten the flamethrower out. From a place of irrelevance a year ago, it has grown to become the most traded crypto-asset in India. It is traded heavily on-chain and on centralized exchanges. Masses of small investors are buying into it hoping to win big — “if it can just make it to 1 cent, that’s not a lot”, they tell themselves.

Its position as a top 15 crypto asset, however, seems precarious. While it does have some utility within the newly built ShibaSwap ecosystem, it does not appear to be a huge contributor to the token’s value given the token’s extremely high market cap to TVL ratio.

Most of the SHIB’s value is based on speculation so if there is a dump, and the price of the token starts dropping quickly, contagion among sellers can spread quickly because they are ‘weak hands’ without much reason to hold on to the token. There is also the looming threat of the token’s second-largest holder potentially dumping on the community which could be disastrous.

SHIB holders hope this will be counteracted by a potential listing on Robinhood, the expansion of ShibaSwap, and SHIBA’s new position as one of the first altcoins to buy on retail first platforms like Coinbase and Crypto.com. If the bull market continues to attract new retail investors to memecoins, then SHIB will remain the little dog that could. Woof.