Shiba Inu burning mechanism struggles to beat enormous 590 trillion supply
Due in large part to its viral marketing effort and affiliation with Dogecoin (DOGE), another meme coin that experienced explosive growth earlier in the year, Shiba Inu (SHIB), became a phenomenon in the cryptocurrency industry in 2021. SHIB attracted a sizable following and drew the interest of Tesla CEO Elon Musk, who frequently tweeted about the coin.
Since its inception, Shiba Inu has burned millions of tokens. Yet, the burning mechanism meant to lessen the amount of SHIB in circulation does not appear to be having much of an impact on the market price.
SHIB/USD 4-hour chart | Source: TradingView
Despite daily burns of about 100 million SHIB, speculative interest dominates value rather than the volume of assets delivered to burn addresses. This begs the question of why the burn rate may not work.
One explanation is the burning mechanism not taking into account the market participants’ psychology. On paper, the number of tokens burned per day could seem important, but in reality, traders and investors might not think so.
Also, the burn rate could not be enough to counteract the inflation brought on by the amount of SHIB tokens. In other words, due to the massive supply, the burning mechanism might be unable to keep up with the rate at which old tokens lose their value.
The majority of tokens are held by a select few addresses, known as whales, which is another element that could undermine the efficiency of the burning process. These significant holders might not be eager to participate in the burning process if they do not see the value in lowering the supply or prefer to retain ownership of the token.
Nevertheless, other variables outside the burning process can be responsible for the speculative interest in the token. For instance, the popularity of the token on social media and its endorsement by well-known people may generate excitement that increases demand for SHIB regardless of the number of tokens destroyed.
SHIB whales giving up
SHIB’s price has steadily declined since it hit an all-time high in May 2021. This has led some SHIB whales to relinquish the coin and move their funds elsewhere.
According to statistics, SHIB whale holdings have dropped significantly since November 2022, indicating that some of the largest holders of the coin are losing confidence in its prospects.
The reasons behind the shift from SHIB to another meme coins are simply that SHIB’s hype cycle may have run its course, and investors are looking for new opportunities.
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