The past few years have seen the emergence of a new class of cryptocurrency: memecoins. Initially a mere joke, memecoins have developed into a market segment worth billions. While Dogecoin spearheaded the movement, new memecoins are rapidly gaining traction. They are powered by internet culture and social media. From an investment point of view, these digital currencies carry unique opportunities as well as risks.
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What Are Memecoins?
Memecoins are cryptocurrencies that start as internet memes and jokes, gaining traction through social media and online forums. Some of these tokens lack utility and technological features, with their amusing and viral nature being their main selling point. They are community-focused, with the advocates for the tokens being the driving force for their demand and, in some cases, value.
New Memecoins Characteristics
New memecoins usually have a few characteristics in common:
Focused on Communities
The community is the main driving force behind the success of memecoins. Unlike other cryptocurrencies, which tend to have prominent use cases or technological features, memecoins depend on the community to stir up demand. The success of these coins is directly proportional to the level of community activity. The greater and more protective the community is, the greater the likelihood of success a memecoin will have.
Extreme Volatility
Memecoins also have one notable feature that they are known for—extreme volatility. With speculations and social media trends driving their value, these coins are bound to face great price swings. This presents a great opportunity to earn money for some, but comes with great risk for investors.
Minimal Use
Memecoins are the very definition of worthless. Their main utility is as a joke, often based on memes, celebrities, or pop culture. While some cryptocurrencies attempt to address real-world problems or improve upon blockchain technology, these juniors to fiat currencies gain fame solely through the power of online entertainment.
Celebrity Sponsorships
Memecoins are often at the mercy of paid sponsorships and it is for this reason that they are so eagerly awaited. An excellent example includes the tweets of Elon Musk regarding Dogecoin, which previously resulted in incredible financial fluctuations. These tweets do not greatly assist the cryptocurrency market, as they fall under the category of Speculative Trading.
The Rise of New Memecoins
Memecoins are a must in today’s world. Sites such as Twitter, Reddit and Telegram are the new-age promoters of cryptocurrencies and act as the main platforms for the Memecoin Community and the fans of these coins to market them to potential users. The internet and meme culture have, in turn, proved to be an ideal environment for memecoins to flourish.
Memecoins are often the beneficiaries of Reddit’s WallStreetBets community, which has a history of heavily influencing the crypto markets. These communities are known for using the power of collective stupidity to focus attention on random tokens, usually accompanied by memes and laughter.
The Impact of New Memecoins on the Crypto Market
Even though memecoins do not offer the same value as established forms of cryptocurrency, they still possess a unique function within the larger crypto market. Memecoins serve as an entry point for neophyte investors who would like to participate in the cryptocurrency market for the sheer thrill of it. Most investors who purchase memecoins eventually shift to altcoins, which have more utility.
Furthermore, the popularity of memecoins has increased the overall popularity of cryptocurrency. While they have little to no tangible value, they serve to educate the masses on the concept of digital currencies and blockchain.
Dangers Involved with Investing in Memecoins
The purchase of memecoins bears considerable danger, especially due to their speculative essence and lack of applicability in the real world.
Market Manipulation
Memecoins are vulnerable to a form of market manipulation by a small collection of investors or ‘whales.’ These larger holders of memecoins can influence the price due to their capability to purchase a large supply of a particular coin, inflating the price and subsequently selling it for a larger price. This makes the memecoin market especially untrustworthy for smaller investors.
Lack of Regulation
The crypto market has little to no rules, especially for memecoins. Because of the lack of regulation, memecoins are exposed to scams and other fraudulent activities. Investors should be careful and only purchase memecoins that are honest and supported by active communities.
Speculative Nature
The majority of memecoins lack the technological innovation that drives real value in the digital currency sphere. Influencer culture, endorsements, or even social media trends can cause irrational and unpredictable price changes for these coins. This creates “pump and dump” cycles, in which the value rapidly increases only to be disrupted by a swift crash.
Approaching Memecoin Investment Strategies
Due to the high volatility and risk, exercise extreme caution when it comes to investing in memecoins. To invest more wisely, consider these suggestions.
Conduct Thorough Research
Before investing in a memecoin, look at its project in detail. Assess the team and their roadmap alongside the community engagement. An active community shows the growth potential, which is a good indicator.
Establish a Spending Limit
Due to their speculative nature, investing only what can be easily lost is essential for setting a spending limit. To manage volatility, consider diversifying by holding a mixture of established cryptocurrencies and memecoins.
Communication Audits
Effectively tracking brand performance via social media can be a challenging exercise. Consider Twitter, Reddit and Telegram as resources to follow the latest trends, memes and conversations surrounding the coin.
Avoid Following the Hype
Even if ignoring social media trends grows more challenging, one must exercise patience. FOMO can be very noticeable, but only social media-based decisions tend to yield the worst returns.
What’s Next for the Future of Memecoins?
While the range of memes and their reuse are believed to generate more volatility than non-crypto assets in the space, the furious nature in which memes spread creates opportunities. The community-oriented approach creates volatility, which poses the best opportunities for the investors.
