Shiba Inu Falls Over 32% In A Week: What Makes Dog-Themed Crypto Coins Volatile?

Shiba Inu (SHIB), which witnessed a price and popularity spike in 2021 (the dog-themed meme coin topped the Coinmarketcap index of most-viewed crypto coins in 2021), was battered in the last seven days with its price falling 32 per cent. In comparison, the global crypto market cap lost 25.24 per cent over the same period.

As of January 24, 2022, it was trading at $0.00002042, down 8.73 per cent in the last 24 hours.

Let’s understand the meme coin in a bit of detail.

What Is SHIB?

SHIB is a popular dog-themed meme cryptocurrency that was launched in August 2020 by a user who remains anonymous and goes only by the pseudonym ‘Ryoshi’. The prices of SHIB were intentionally kept at $0 initially so that developers could start earning right from the start for every cent of the price increase.

Shiba Inu is the name of the dog breed which is featured on all the dog-themed meme coins like Dogecoin, Shiba Inu, Floki Inu, and others.

SHIB crypto is based on the Ethereum (ETH) ERC-20 blockchain but it uses a proof of stake consensus mechanism to validate all transactions on its network. ERC is the official protocol for proposing improvements to the Ethereum blockchain by the community. ERC-20 is the protocol identifier number.

Proof of stake (PoS) is an energy efficient consensus mechanism where users based upon their pledged (staked) crypto holdings are selected randomly for validating a transaction originating on the said crypto network.

SHIB Vs DOGE

One of the key differences between the other popular dog-themed coin Dogecoin (DOGE) and SHIB is that DOGE has its own blockchain network, whereas SHIB relies on the Ethereum blockchain to power its network. It is for this reason that DOGE is called a coin and SHIB a token.

However, do note that neither networks are a perfect product and they both suffer from network congestion and high gas fees (mining cost), and other blockchain-related problems.

One of the major factors that have propelled the prices and popularity of dog-themed coins have been celebrity tweets, including those by Tesla CEO Elon Musk. Elon Musk has been the biggest endorser of Dogecoin and earlier Bitcoin too. His tweets about cryptos make the prices soar or crash depending upon the nature of the post.

However, investment decisions should be made based on fundamental prospects and other factors. “Despite their growing popularity and acceptance, regulations around cryptocurrencies are still evolving with tax authorities, enforcement agencies, and regulators around the world still debating best practices to govern them and their legality depends upon the jurisdiction and their mode of usage,” says Rohit Sarin, co-founder of Client Associates, private wealth management and multi-family office (MFO) firm.

Things to Keep In Mind About Dog-Themed Coins

Here are a few factors to keep in mind about dog-themed cryptocurrencies that can affect their prices and stability in the long term: 

1. Not every one of them has proven use cases yet: 

DOGE started as a joke initially, but it has come a long way since then. It is now a viable payment method in some cases and is also used as a community empowerment propaganda tool.

The Dogecoin Foundation even sponsored NASCAR driver Josh Wise a few years back. Elon Musk announced a few weeks back that Tesla merchandise purchases can now be made using Dogecoin.

But not every dog-themed meme coin has such broad use cases. SHIB has started to work towards achieving many potential use cases like DeFi, NFT (non-fungible token), metaverse etc. but those are still in their early stages. 

2. Unrealistic Project Goals:

 A lot of dog-themed meme coins have set their project’s goals that are either a distant reality or near impossible to achieve. Remember to read the published whitepaper of any dog-themed coin to understand the projects and targets it has.

“Cryptocurrency promises that someday the blockchains that it powers will provide ubiquitous utility to human beings. While we have seen several functional initiatives, adoption levels are still minuscule on a global scale. However, the differing perceptions of the kind of future that cryptocurrencies will have, results in market imbalance, leading to price volatility. Such volatility creates some winners in the market. And this fuels speculative pressure,” says Ajeet Khurana, a crypto advisor and investor. 

3. These Are Riskier Than Mainstream Cryptos: 

A lot of these dog-themed cryptocurrencies are relatively new and are trading at unrealistically high prices just because of community-based hyped-up trading. A lot of these coins intrinsically have no value, yet they are trading in billions. This phenomenon is very similar to musical chairs—when the music stops, somebody is going to get left behind.