Why Shiba Inu's Morning Surge, Then 5% Plunge, Matters for Markets Right Now

SHIB-USD -5.36%

Key Points

• Traders and investors in this top meme token appear to be looking to take risk off the table.

• Aside from macro concerns around valuations, meme tokens are seeing outsized volatility for other key reasons.

• Here's one of the big drivers of today's decline Shiba Inu enthusiasts may want to watch closely.

• 10 stocks we like better than Shiba Inu ›

In the world of meme cryptocurrencies, Shiba Inu (CRYPTO: SHIB) has a chart that almost perfectly matches what many investors have come to expect when investing in these high-upside, higher-risk assets.

Today's price action in Shiba Inu has been intriguing to watch. Following the surge and plunge we saw today in the equity markets, Shiba Inu's impressive morning rally (which took this token 6.7% higher than yesterday's low) has been met with similar selling pressure this afternoon. As of 5 p.m. ET, Shiba Inu has sunk 5% from this morning's high.

Let's dive into what's driving this volatility, and where this popular meme token could be headed from here.

Fundamentals showing significant weakness

Among the key value drivers that many Shiba Inu investors have pointed to as reasons to hold this meme token for the long term are increasing token burns over time. Investors largely expected to see eventual deflation for this otherwise inflationary token via the protocol's burn mechanisms. Unfortunately, recent data suggest that not only have these burns not materialized in a meaningful way, but even on days where there are burns, the absolute size of these token reductions can't mask new token issuance over time.

In combination with weakening broader momentum and what appears to be a decline in on-chain activity, Shiba Inu's bullish thesis is becoming increasingly challenging to support right now.

Sure, plenty of memes may be heading our way from popular figures. Short-term catalysts can certainly lead to vicious reversion rallies, as we've seen in the past.

However, given the directional momentum of this market at present, this is a top token that investors are probably right to be skeptical of. In my view, Shiba Inu's recent high-volatility price action suggests those who aren't extremely risk aggressive may want to look at other assets right now.

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Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Why Shiba Inu's Morning Surge, Then 5% Plunge, Matters for Markets Right Now was originally published by The Motley Fool