The shiba inu (SHIB) coin has had a really interesting week. Between late October and Nov. 28, the “Dogecoin Killer” meme token lost about half of its value in dollar terms. Then it surged more than 30% as the Kraken exchange announced it would list the token. Then, starting early this morning, it crashed again by about 20%.
Volatility has been a notorious feature of most cryptocurrencies, of course – they’re speculative investments so they swing on sentiment, much like Tesla and GameStop and Rivian stock. SHIB is distinct in that it’s explicitly a “meme token”: It declares pretty much up front that it has no unique utility and depends on attracting a “community” of holders for its value. I don’t think it would be unfair to describe SHIB as a “decentralized Ponzi scheme.”
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Parts of that also applies to the likes of bitcoin or ether but meme tokens lack the underlying technological advantages of top cryptos – bitcoin’s hardness, ether’s use in smart contracts run on the Ethereum blockchain – or even the innovation in so-called altcoins like Decred’s governance experiments over the years. Shiba inu’s spiritual forebear, dogecoin, was in fact created to more or less make fun of the idea that crypto was actually an “innovation.” One of its co-creators has become an extremely salty crypto critic.
But instead of standing as a performance-art critique, DOGE ended up presaging a wild new species of free-market speculation. It was the first meme token, and during its early days circa 2013-2015 it test-drove the lighthearted community shenanigans that have become an inescapable bizarro element of 21st century capital markets. Just like the GameStop crowd nearly a decade later, DOGE holders organized through message boards like Reddit and engaged in eye-catching stunts such as sponsoring a NASCAR team and the Jamaican bobsledders.
The DOGE community is not as prominent these days, but those early memes have helped the currency stay in or near the top ten of all cryptos. As developers put their blood, sweat and tears into technological innovators like Ethereum, and more recently Solana and Avalanche, DOGE just kept derping along, changing barely at all, coasting on Good Vibes.
And it worked! Which makes it all the more emotionally complicated to watch something like shiba inu skyrocket in value over the past few months. It is arguably an even purer distillation of the memecoin ethos of uselessness than dogecoin. DOGE at least has its own blockchain, while shiba inu is just an ERC-20 token on Ethereum. It offers no defensible market or technology “moat.” It seems to have benefited substantially from unit bias as new entrants came to crypto and bought the token just because it was “cheap.” Its presence among the most valuable cryptos on some indexes is thanks to a perhaps misleading “market cap” metric. And its supply cap of 4 trillion coins, even if it were reliably enforceable, means there’s very little long-term scarcity.
And yet there it is, trading with the big boys. The one thing you can’t do in response is become a meme yourself, gritting your teeth and growling about how “SHIB offers no technological innovation and should be worth zero aaaargh!”
By getting mad at SHIB, you’re implicitly buying into the Efficient Markets Theory, or EMT. EMT is (loosely) the “invisible hand” you learned about in your high school economics class, the idea that supply and demand magically converge on a “correct” price. When it comes to assets, EMT assumes that investors, collectively, have access to all relevant information about an asset and reach a price based strictly on that information.
But boy oh boy, is that idea deader than a doornail.
I’ve recently been digging into a true investing classic, “The Money Game.” Published in 1968, it was in retrospect one of the earliest rebuttals of EMT, après la lettre. It was considered so scandalous, both for its gossip and its principles, that author George Goodman, a working Wall Streeter, felt compelled to publish under the pen name “Adam Smith.” It was a snarky choice, because Goodman set out to undermine, or at least dramatically question, the mechanistic and mathematical worldview that the original Adam Smith developed. And Goodman had some profoundly sage advice that applies to those questioning the rise of SHIB today:
“Successful investors I know do not hold to the way it ought to be, they simply go with what is.”
Or, translated to modern terms: lol, u mad bro?
Now don’t get me wrong here – if an economic slowdown hits at the wrong time, the SHIB Army is going to get routed like Napoleon invading Russia in winter. Even in a minor crypto-market downturn, we saw it sink dramatically. So if the real economy tanks and people decide they need to cash in their SHIB to pay the bills, it’s bye-bye. There is no “buy the dip” or long-term growth flywheel for meme tokens. They’re very much a game of musical chairs; if you’re standing when the music stops, ouch.
However, if excitement and community around SHIB remain high long enough, all that logic and reason is out the window. For one thing, in the 21st century, memes have a habit of reshaping reality. Take GameStop, a failing mall retailer that is in the process of leveraging its Reddit popularity to substantially restructure its business. SHIB already has at least a few interesting projects and expansions, such as the Shibaswap “Decentralized Exchange” (I’m using scare quotes because I frankly have no idea if it’s a real DEX).
And here’s where we circle back around to the volatility of crypto as a whole. Bitcoin was itself for a long time just as volatile as SHIB. It still is sometimes! Good, solid ideas are memes too, after all, and they take time to spread and suffer setbacks. Volatility in speculative assets is one index of how a new idea spreads through markets. Or, in the case of SHIB, a new joke. In the medium term, there’s maybe not much difference.
This dynamic isn’t particularly a good thing, but its root cause isn’t meme tokens, it’s the broader overheated asset market, which is a function, at least in part, of the slam-bang U.S. economic recovery. The implicit long leverage in the valuations of companies like Tesla – which is in the S&P 500! – would melt under the hot lights of a genuine downturn, probably not much more slowly than SHIB. There is still a serious difference between speculative bets like GameStop and SHIB and more established assets with clear theses, like Ethereum or Pfizer.
But we live in a world where that line is more permeable than ever. Dreams and memes can evaporate in a light breeze, but given enough time and enthusiasm they can also become reality. And if it’s a crypto, the Real Thing that a meme becomes is simple: It becomes money.