In preparation for writing this article about Shiba Inu (SHIB-USD), I searched the internet for an interesting angle.

To my surprise, my good pal and InvestorPlace colleague, Josh Enomoto — who I consider our best crypto commentator — gave me an excellent idea.

Coin Burning is Not Enough

On Feb. 9, Josh discussed how the burning of SHIB-USD tokens could only have a limited effect on its price. That’s because there’s more to Shiba Inu than just its supply.

Here’s what he had to say on the subject on Feb. 9:

Rather than start off with one and move its way toward a predetermined ceiling, Shiba Inu started off with trillions of tokens (from what I understand). From there, the community consensus can wean off supply as they see fit, thus burning tokens

Heck, when you have trillions, what’s burning a few hundred million?

He goes on to say burning tokens doesn’t make Shiba Inu fundamentally better.

He’s not wrong. For a crypto to be fundamentally better, in my opinion, it has to provide utility. I’m not sure SHIB-USD has any.

However, I’ve got an idea that could add much better value than periodically burning coins.

Shiba Inu Does a Buyback

As Josh discussed in his commentary, the burning of coins is much like a company buying back its shares in the sense that the shares remaining outstanding after the buyback are worth a little bit more to all those that hold them.

For example, if Company A had 10 outstanding shares held by 10 different shareholders and worth $10 a share, and it bought back two of its shares, the remaining eight would be worth $12.50. Put another way; the eight owners would see their equity interest in the company increase to 12.5% each from 10%.

That’s why Warren Buffett likes them. Here’s what he said in 2018:

I’d rather have it go down for one thing, if it goes down Apple is going to buy a lot of stock back, already buying stock back… If it goes down 10 percent it means they get to buy 10 percent more shares and my interest will go up 10 percent more for spending that money.

So, by burning 162 million SHIB-USD tokens, the number in circulation and the total supply go down, increasing the value of each token held by investors.

However, like the share buyback announcement, the short-term effects are much more significant than over the long term.

So, as my colleague said, the returns from token-burning are fleeting.

I’ve Got a Better Idea

Why not do a reverse split rather than burn tokens from time to time?

Penny stocks do them all the time so they can remain in compliance with the Nasdaq and NYSE listing rules. For example, InvestorPlace’s Thomas Niel recently discussed the potential reverse stock split of Calgary-based cannabis investor Sundial Growers (NASDAQ:SNDL).

Now, Niel did point out that reverse stock splits have been known to put even greater downward pressure on the share price despite being higher by a factor of 10, 50, or even 200.

Last October, I discussed the allure of riding Shiba Inu from $0.00004589 to $1. A few weeks earlier, SHIB-USD had a price that included five zeros. The thought of losing all those zeros is like dreaming about winning the Powerball.

My colleague, Mr. Enomoto, often talks about the law of small numbers. Well, as I write this, Shiba Inu is trading at $0.00002899, down from its price last October.

Shiba Inu Needs To Be More Than a ‘Penny Crypto’

Sure, you can make the argument that a $1 token price would keep more people from buying SHIB-USD, but for years, companies let their share prices move up to the hundreds of dollars and then thousands without too much concern. Now with fractional shares, it’s a non-issue.

So, why keep the price so low? Why not do one massive burn that eliminates 50% of the total supply? Whatever it takes to move the price above $1.

If $5 is the ceiling for penny stocks, I’ll argue that “penny cryptos” are those trading under a buck.

If the good folks behind Shiba Inu are serious about their token, they’ll add real value with a crypto version of the reverse stock split. Or try to increase the coin’s fundamental utility.

Woof woof. All bark.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.