The value of cryptocurrencies is difficult to determine. However, it gets a lot more complicated when trying to determine the value of meme-coins. What started as a joke has led to life-changing gains (and losses) for many investors.
The year 2021 saw several meme-coins increase in value exponentially, including some coins that are nothing more than internet-driven hype.
Are meme coins worth investing in, or is it a transient hype?
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What are meme coins?
We talk about a meme coin when a digital currency is driven or based around internet memes. In other words, these coins are supported and promoted by images or videos that are shared massively on social media.
The difference between a meme coin and a “regular” coin lies in the utility of the coin. While Bitcoin and Ethereum were built with goals such as distributing centralized control structures and creating a censorship-free payment structure, a meme coin has little utility.
The meme coin is usually created as a joke or outright scam. Currently there are more than 100 different meme cryptocurrencies according to Coinmarketcap.
What are the most popular meme coins?
Dogecoin – DOGE was the first and original meme coin, created as a joke in 2013. It is a fork of the well-known cryptocurrency Litecoin. Dogecoin peaked in 2021 when it was promoted by some significant Twitter accounts such as Elon Musk and Mia Khalifa. The all-time high (ATH) of Dogecoin is $0.7315 at the time of writing.
Shiba Inu (SHIB)
SafeMoon was founded by improving Dogecoin’s model and changing the pain point of infinite supply. Safemoon chose to use a deflationary model, which meant it would only increase in value in the long run. It was popularized by Youtuber Logan Paul and influencer Dave Portnoy. In June 2021, Safemoon’s market cap reached about $2 billion.
The risk of meme coins?
Meme coins are created for laughs and thus have little financial use in the “real” world. Therefore, there are numerous risks associated with this area of cryptocurrency, something you should definitely consider as an investor.
- Extreme volatility: We often recognize the pump & dump characteristics with meme-coins. The price can drop or rise by up to tens of percent in short-lived periods. It is vital to keep a close eye on the price.
- High risk: With meme-coins, trend reversals are sudden and brutal. Especially when trading meme-coins on derivative markets, it is possible to suffer heavy losses. Therefore, always be careful and certainly do not bet more than you can lose.
- Drawdowns: The danger of huge dumps or devastating back pulls always exists. This is because some meme coins are only traded on decentralized exchanges where there is no regulation. One speaks of a back pull when the developers of the coin sell/dump large quantities simultaneously, causing the price to collapse. Even experienced investors fall victim to back pulls.
- Communities: Communities determine the popularity of meme-coins. However, if the community that makes the coin popular falls apart, the meme-coin will undoubtedly follow the same fate as that of its community. Also, meme coins are backed by so-so communities that consist only of bots.
- It’s all so tiresome: Because events on the Internet drive meme-coins, it can sometimes be tiring to keep up with the latest news.
How do I invest in meme coins?
Investing in meme coins goes the same way as investing in any other cryptocurrency. You will first need to register on an exchange that trades the meme coin you want. To trade the big meme coins, one will have to go to the major exchanges.
There are many other coins that can be labeled as meme-coin. For example, in the video below, see actor Lesley David Baker, who plays the role of Stanley in the popular television show The Office, promoting the meme-coin ‘Nickel Token.’
Meme coins are super volatile and speculative, which allows investors who are familiar with the extreme market conditions to capitalize on trading these coins. Nevertheless, the potential of meme coins is limited because it focuses more on the underlying humor than the financial value.
Still, the ultimate success of a (meme) coin is the community. As long as the community keeps memes alive, there is hope for the future of meme-coin.
One should not forget that blindly trusting crypto memes or influencers touting (meme)-coins is the fastest way to the food bank. Therefore, it is essential to ALWAYS do your research before making investment decisions.
Never risk more than you are willing to lose and manage the risk when you are in a position. Despite several millionaires being formed from the last meme-coin bull run, probably ten times as many investors lost money.