Shiba Inu: Buy the Dip?

As Shiba Inu (SHIB -5.35%) soared 45,000,000% back in 2021, it -- unsurprisingly -- grabbed investors' attention. And the gain made many wonder if this popular meme token could deliver a repeat performance.

Last year, Shiba Inu didn't. The cryptocurrency followed the rest of the market lower amid general economic worries.

Now, after showing a bit of momentum earlier in the year, Shiba Inu is on the decline again. And it's falling just as it's reached a major milestone -- the beta test launch of Shibarium, its Layer 2 solution. Is this dip a buying opportunity? Let's find out.

Why Shiba Inu skyrocketed

First, let's consider why Shiba Inu skyrocketed in the past. There's always been a bit of mystery surrounding Shiba Inu, and that's clearly made for an interesting story right from the start. A founder known under the pseudonym Ryoshi launched Shiba Inu in August 2020.

The cryptocurrency was meant as an experiment in decentralized community building, according to its white paper. And it succeeded, with its loyal followers, the Shib Army, drumming up support and excitement about the cryptocurrency across social media. As this excitement was building, investors piled in -- many out of the fear of missing out.

So, what brought Shiba Inu back to Earth? As I mentioned, the general crypto market declined last year -- investors favored safer assets considering the difficult economic environment. But investors may also have considered Shiba Inu's capabilities versus the thousands of other cryptocurrencies out there. And here, it's fair to say Shiba Inu doesn't stand out.

Shiba Inu is primarily a payment token running on Ethereum. Investors also can stake their holdings to collect passive income. This doesn't differentiate Shiba Inu from competitors. And that means there really isn't a good reason for this crypto to surge.

Still, right now, Shiba Inu is in the middle of a big moment -- and one that at least will help it gain in use cases. Shiba Inu just launched the beta test of Shibarium. Developers now can build applications directly on Shibarium and use it to support their projects.

And with Shibarium, they'll avoid the congestion and high costs of Ethereum. Those issues have been a challenge for Shiba Inu in the past, due to its reliance on the big blockchain.

Whales unload trillions in tokens

So far, though, this news hasn't helped lift Shiba Inu. In fact, the crypto is down about 15% over the past month. And Ethereum whales unloaded trillions of Shiba Inu tokens following the Shibarium launch, according to The Daily Hodl.

However, these big wallets haven't completely abandoned Shiba Inu -- the token remains one of their top five holdings, WhaleStats data show.

Now let's get back to our question: Should you buy Shiba Inu on the dip?

Shibarium wasn't the big catalyst some may have hoped. But the opportunity is far from over. The beta period has just begun. Positive news from the Shibarium project and an eventual full launch could boost Shiba Inu down the road.

That said, Shiba Inu still faces a major problem: its token supply. The 549 trillion tokens in circulation make it nearly impossible for Shiba Inu to move from fraction-of-a-cent territory to values of $0.01 or $1. Even the crypto's current effort to burn tokens isn't enough to make it happen.

Of course, you might buy Shiba Inu on the dip and benefit from an increase within this fraction-of-a-cent territory. But as it's designed today, the crypto doesn't have what it takes to truly increase in value and keep the gains over time. That makes it highly risky.

And that's why I would look for other cryptocurrency opportunities -- and wouldn't buy Shiba Inu on the dip.