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With a meteoric first rise in price, Shiba Inu (SHIB) token has gained considerable attention. Crypto Investors are always interested in new rising stars to make a significant return on investment.
This report compares the returns of Shiba Inu and Bitcoin (BTC), risk and related considerations are also addressed. While anecdotes and viewpoints may be circulating in the markets, this report utilizes actual past performance to draw conclusions.
Hypothesis testing has been employed in this report to test the returns and risk.
A pooled variance test has been conducted to test returns, and an F test has been conducted to test risk.
What does the data reveal?
The data of the first 2 quarters of 2021 reveals that average daily returns of SHIB stood at an exceptional 12.72% (monthly increase for the period stood at 345.5%), while BTC's daily returns for the same period stood at 0.2% daily (monthly growth rate for the period stood at 2.53%); SHIB's returns being 6260% higher than BTC's returns, astonishingly. The returns are 3 standard deviations apart.
However, another critical consideration is risk; the risk of Shiba has been 1071% higher than the risk of BTC (ALL DATA ATTACHED BELOW).
There is, of course, a risk discrepancy: SHIB's risk isn't linear in relation to its returns, i.e., the risk is about 1 thousand percent higher, while the returns are 6 thousand plus percent higher. Broadly, this condition points to an early price surge-related jolting risk, which should be classified as a pre-price stabilization move, and we would likely see price stabilize and consolidate in cycles, marching upwards in this pattern, if the long-term upward momentum is maintained.
If an investor invested $1 in Shiba Inu on January 30th, 2021, the $1 would have grown to an unbelievable $831 on June 16th, 2021, with a peak high during the period of $3500. For the same time, $1 invested in Bitcoin would have appreciated to $1.12, with a peak high of $1.85. Clearly, this token has yielded exponential returns; nevertheless, as they say, past performance is no guarantee of future returns.
It must be understood here that it is purely a speculative asset, if we can even call it an asset, with no intrinsic value; putting money in it, thus, is very much similar to gambling in nature, then to investing. Yet, if one has a spare change that one wouldn't be concerned with losing (Like in Vegas), the extraordinary performance does warrant a small play, nonetheless.
Arguably, the most favorable initial factor has been the attachment of Vitalik Buterin with this token; if, and as other notable names are attached with this token, it will attract more attention. It is also worth noting that this is a deflationary coin, i.e., its total supply in circulation is set to decline over time. This would benefit long-term holders as the scarcity of this token increases; of course, this is not a feature available in BTC.
This token isn't based on an extraordinary technological leap of the blockchain system; its code is a modified Dogecoin, based on the Ethereum blockchain, nothing special, therefore.
It is what they call a 'meme investment,' and thus, arguably, it shouldn't be classified as an investment at all; it should instead be considered as something similar to a gambling bet or lottery ticket. The demand is driven primarily by speculative greed, by smaller accounts that believe they missed out on Dogecoin's exponential growth, and this token, by many, is considered a second opportunity.
All in all, this token isn't worth 'investing' serious money in. its price has demonstrated a risk factor that is 1000% higher than that of Bitcoin, which in the asset management community is considered highly risky.
Having said that, if an investor has 'play money' a few hundred to a maximum of $3-4 thousand, the 'spread' on this gamble appears 'attractive.' Thus, by all means, if you're a gambling girl or guy, you can buy a little as a gamble, but making an investment larger than $5,000 is absolutely not recommended.
A lot of investors and traders that missed the early meteoric rise of bitcoin, ripple, and Dogecoin are looking for a crypto that has the potential of 'going to the moon,' as they say. As more and more institutional money is allocated into Bitcoin, its price is highly likely to stabilize and grow at a more reasonable rate of, say, 15-20% p.a., in the best-case scenario. Thus, that exponential growth opportunity is eliminated as more serious money moves in. Similarly, the upside potential of Dogecoin above a price of $0.5 is going to be limited, do to supply.
In the current scenario, SHIB does fill a 'synthetic' need of a crypto with exponential growth potential. At the same time, it may be argued that there are thousands of cryptos, and some other crypto may rise exponentially as well. While this is, of course, possible, we must understand that there are thousands of worthless and sham cryptocurrencies on the market.
In such a 'garbage dump,' the only thing that can make a cryptocurrency stand out is differentiation through association. While we see some coins present the case of their currency being substantially better than others, the truth is that all these 'currencies' are only marginal improvements of BTC; no single one is extraordinarily better than others.
In such a speculative environment, with these assets having no intrinsic value, the only factor that can provide differentiation is association. Through a well thought of strategy or mere chicanery, Vitalik Buterin is associated with this token; just this factor alone is attention-grabbing, and will very likely lead to other influencers joining the team, and as they do, the demand will rise, increasing the price. Coupled with the decreasing circulatory supply, if it maintains influencer attention long-term, it has a chance of being a top 10 coin based on market cap.
Finally, we must state that these are all instruments with no intrinsic value; do not invest serious money in these coins, and only put in money that you can afford to lose, seeing the whole situation as a gambling game in your mind.
Pooled variance test is conducted as:
H0: µ1= µ2, vs H1: µ1 ≠ µ2
The mean returns of the two cryptos (comparison) are analyzed for equivalence.
Pooled Variance test:
Two sample t-test (pooled variance), using T distribution (DF=270.0000) (two-tailed) (validation)
1. H0 hypothesis Since p-value < α, H0 is rejected. The average of Shiba Inu's population is considered to be not equal to the average. of the Bitcoin's population. In other words, the difference between the average of the two populations is big enough to be statistically significant. 2. P-value p-value equals 0.0123768, ( p(x≤T) = 0.993812 ). This means that the chance of type1 error (rejecting a correct H0) is small: 0.01238 (1.24%). The smaller the p-value the more it supports H1. 3. The statistics The test statistic T equals 2.518126, is not in the 98% critical value accepted range: [-2.3402 : 2.3402]. x1-x2=0.12, is not in the 98% accepted range: [-0.1100 : 0.004964]. The statistic S' equals 0.0480 4. Effect size The observed standardized effect size is medium (0.31). That indicates that the magnitude of the difference between the average and average is medium.
F test has been conducted as:
H0: σ1 = σ2, vs H1: σ1 ≠ σ2
The variance of the returns of the two cryptos (comparison) to assess equivalence.
F test:
F test for variances, using F distribution (dfnum=138,dfdenom=138) (two-tailed) (validation)
1. H0 hypothesis Since p-value < α, H0 is rejected. The sample standard deviation (S) of Shiba Inu's population is considered to be not equal to the sample standard deviation (S) of Bitcoin's population. In other words, the difference between the sample standard deviation (S) of the two populations is big enough to be statistically significant. 2. P-value The p-value equals 0, ( p(x≤F) = 1 ). It means that the chance of type I error (rejecting a correct H0) is small: 0 (0%). The smaller the p-value the more it supports H1. 3. The statistics The test statistic F equals 137.3738, which is not in the 98% region of acceptance: [0.6716 : 1.489]. S1/S2=11.72, is not in the 98% region of acceptance: [0.8195 : 1.2202]. The 98% confidence interval of σ12/σ22 is: [92.2612 , 204.5449].