Memecoins explained

The introduction of Bitcoin in 2008 by Satoshi Nakamoto has given birth to different varieties of cryptocurrencies, including utility tokens, privacy coins, real-world assets, Artificial Intelligence (AI) tokens and meme tokens commonly known as meme coins amongst others. 

Drawing the attention of both experts and newcomers in the cryptocurrency scene, memecoins have gradually saturated the crypto market. According to data on Coinmarketcap, the memecoin category boasts a cumulative market cap of over $63 billion with more than 1,370 meme tokens in existence at the time of writing. 

With their funny names, vibrant communities, and highly volatile price actions, memecoins represent a unique aspect of the crypto market. However, behind the memes and craze, lies a complicated ecosystem that requires a deeper awareness to invest wisely—if you must. 

What are memecoins?

As the name implies, memecoins are cryptocurrencies born out of internet memes, social media sensations and jokes. Characterized by zero use cases or utility and lacking in intrinsic value, they often feature playful branding, and community-driven development, and are sometimes based on caricatures of popular figures. 

Memecoins gain value primarily through social media hype rather than through any inherent utility or technological innovation. The most popular meme tokens and the largest in terms of market capitalization in the crypto market include Dogecoin (DOGE), Shiba Inu (SHIB), Pepe (PEPE) and Bonk (BONK). 

Why meme tokens gain adoption

One of the most appealing aspects of memecoins is their low barrier to entry. Unlike most advanced crypto assets such as Bitcoin (BTC) and Ether (ETH), which often require significant capital to accumulate, a significant volume of meme tokens can be purchased with relatively small amounts of money. This allows low-pocketed individuals to dip their toes into the cryptocurrency market. 

The potential for high returns from small capital is another reason crypto market participants embrace these zero-utility tokens. Memecoins are famous for their volatile price swings, which can result in significant gains for early investors. 

In numerous cases, memecoins have experienced exponential growth in a matter of days or even hours, leading to massive profits for those who bought in early. This potential for high returns has attracted risk-tolerant investors seeking quick profits. 

Read Also: BONK Surges Nearly 40,000% Within A Year Amid Solana Boom

What are the cons or risks associated with memecoins?

While memecoins may offer profit-making opportunities, they also come with significant risks that investors should be aware of. 

  • High price volatility

Notable among these risks is their high price volatility. Memecoins are known for their extreme price volatility as they can either rally or dump 10x, 100x, 1,000x or more in a matter of days, weeks or months. These rapid price fluctuations can lead to substantial gains or losses within short periods, making them a very high-risk investment option. 

  • Lack of fundamental or intrinsic value 

Unlike other cryptocurrencies that are backed by technological innovation or real-world applications, memecoins often lack fundamental or intrinsic value. While some may have utility within specific communities and applications, their prices are driven majorly by investor speculation and hype, making them susceptible to sudden pumps and crashes.

  • Lack of use cases and long-term viability

While some memecoins may enjoy moments of fame and significant price surge, their long-term viability remains uncertain. This is because many memecoins lack a clear roadmap or utility beyond their initial hype and community-driven nature, leading to questions about their sustainability and staying power in the crowded cryptocurrency market. More often than not, many memecoins fail to recover whenever their market prices crash to significantly low levels, causing them to enter into oblivion. 

  • High exposure to market manipulation 

Following their often low market capitalizations, memecoins are vulnerable to market manipulation. Particularly, pump and dump schemes, where the price of an asset is artificially inflated by coordinated buying and then dumped for profit, are common in the memecoin space.

The decentralized nature of memecoins also makes them susceptible to some common crypto scams such as rugpulls. A rugpull is a form of exit scam where crypto token developers exploit gullible investors by abandoning the project, taking with them any invested funds or assets, and leaving investors with worthless tokens or coins. 

Read Also: 5 promising memecoins to watch as crypto bull market sets in

How to Approach Memecoins Wisely 

While investing in memecoins can be enticing, it’s essential to approach them with caution and a level head else you will get your hands burned. Here are some tips that may guide your memecoin investment journey: 

Invest only what you can afford to lose.

Due to their high volatility and speculative nature, only invest funds that you can afford to lose entirely. Avoid investing money earmarked for essential expenses or long-term financial goals.

Don’t put all your eggs in the memecoin basket. 

It’s always wise to diversify your investment portfolio across different asset classes to mitigate risk and protect yourself against market downturns. In other words, while investing in promising memecoins, you should also bet on other cryptocurrencies with clear use cases and applications such as Artificial Intelligence (AI) tokens and real-world assets (RWA), etc. 

Learn to take profits when you should

Knowing when to take profits or exit trades is a must-have skill for every crypto investor as failing to book profits when you should may lead to significant losses. Whether you love trading meme tokens, BTC, ETH, ADA, XRP or any other crypto asset, learn to put your greed level in check. 

Read Also: Why Crypto Asset Prices are Set To Skyrocket in 2024

Overall, the future of memecoins is uncertain but they will undoubtedly remain a part of the crypto market. While some may fizzle out as quickly as they appeared, others may evolve into legitimate projects with lasting value. 

About Author

Verified by MonsterInsights