Another dog-inspired cryptocurrency called shiba inu, or SHIB, hit an all-time high of $0.0000594 on Wednesday.
Despite its price being below one cent, the “meme token” has garnered a lot of attention. Shiba inu now ranks No. 11 among the top cryptocurrencies by market value, according to CoinMarketCap. It is up more than 111% over the past seven says, as of 9:42 a.m. EST on Wednesday.
Though shiba inu is cheap to buy and it may be tempting to jump in, experts say investors should do their research first.
“Before investing in any cryptocurrency, it’s important to understand what you’re investing in and the associated risks, not just hype around it,” Douglas Boneparth, certified financial planner and president of Bone Fide Wealth, tells CNBC Make It.
Shiba inu is typically considered an altcoin, which refers to the multitude of cryptocurrencies aside from bitcoin. Cryptocurrency can be a very volatile and speculative investment in general, but experts say altcoins can be even more so.
Here’s what you should know.
Shiba inu was created in August 2020 by a pseudonymous founder called Ryoshi. As its name suggests, the token is inspired by shiba inu dogs.
Shiba inu is an Ethereum-based ERC-20 token, which means it is created on and hosted by the Ethereum blockchain, rather than its own blockchain.
Ryoshi decided to launch shiba inu on Ethereum because it’s “already secure and well-established,” according to the shiba inu white paper, or, as its community calls it, “woof paper.”
However, experts warn that the ease of launching a project on the Ethereum blockchain means that underdeveloped cryptocurrencies can be launched into circulation at a low cost to a developer.
Shiba inu has a total supply of one quadrillion. Ryoshi claims they do not hold any shiba inu coins and nearly half of its is supply locked in a liquidity pool on decentralized exchange Uniswap. The rest was sent to Ethereum co-founder Vitalik Buterin.
According to shiba inu’s white paper, Ryoshi sent tokens to Buterin with hopes that he’d keep the tokens. However, Buterin did not. He burned a majority, taking them out of circulation, and donated a significant amount to the India Covid Relief Fund and other charities.
“Altcoins like SHIB are primarily community-based, meaning their success is largely dependent on the success and growth of its community instead of its utility,” says Boneparth, who has invested in bitcoin since 2014. Indeed, Ryoshi calls shiba inu an “experiment in decentralized spontaneous community building” in its white paper.
Experts warn that any cryptocurrency investment can result in the loss of your entire investment. They generally recommend that you only invest what you can afford to lose, regardless of which cryptocurrency you choose.
But altcoins may require additional caution due to their differences from something like bitcoin, including their structure, supply and utility.
Bitcoin, for example, launched in 2009 with the intent to have utility as a peer-to-peer financial system. Its blockchain was carefully created, with a well thought out ecosystem. Bitcoin also has a limited supply, which allows for built-in scarcity by design. Because of that, it’s seen as a store of value by its holders, who also hope it becomes a prominent decentralized digital currency.
Most altcoins lack these characteristics.
Shiba inu supporters argue that its ecosystem, which includes smart contract capabilities; NFTs, or nonfungible tokens; and opportunities for liquidity mining, to name a few, offer utility beyond community.
But nonetheless, “many altcoins can be extremely risky and may not have any inherent investment value, and retail investors should not trade these assets without research and due diligence,” says Brett Harrison, president of cryptocurrency exchange FTX US.
Rather than investing in a surging cryptocurrency based on hype, Harrison recommends looking for crypto assets with specific utility.
“There are a number of crypto assets that can be suitable for retail users, whose investment prospects can be tied to their ability to provide a store of value, to facilitate an efficient mechanism for payment transfers, or to power a protocol used to build blockchain-based applications,” he says.