Understanding Meme Coins: The World of Cryptocurrency Humor
Meme coins are humorous and speculative cryptocurrencies with names like Dogecoin and Shiba Inu. They're supported by passionate online communities and often lack practical use cases. While they can be entertaining, investing in meme coins can bring in huge gains or losses due to their volatility. This guide provides you with an overview of meme coins and their risks in the cryptocurrency market.
Meme Coins Demystified
The term "meme coin" has gained prominence in the world of cryptocurrencies. These digital currencies are often named after characters, individuals, animals, artwork, or anything else that can be humorously replicated.
Meme coins are usually championed by enthusiastic online communities and are meant to be entertaining. While they may offer a good laugh, it's crucial to recognize that meme coins are speculative investments with little or no intrinsic value.
Notable examples of meme coins include Dogecoin, Shiba Inu, Pepe, Bonk and others that prioritize amusement over practicality. When considering investments in meme coins, it's imperative to understand the associated potential profits and risks.
Understanding Meme Coins
Meme coins represent a loosely defined genre of cryptocurrencies backed by passionate online communities that contribute to the currency's growth. These coins are sometimes linked to animated characters or meme-worthy animal images.
Notable examples of meme coins that have gained popularity include Dogecoin and
Notable examples of meme coins that have gained popularity include Shiba Inu. The category extends to lesser-known currencies like Bonk, Pepe, Floki, Memecoin, Baby Doge, and Dogelon Mars. Despite receiving less media attention, these coins often maintain market capitalizations in the nine-figure range.
Meme coins, like other cryptocurrencies, operate on a blockchain technology, a distributed database used for tracking virtual assets, including cryptocurrencies and non-fungible tokens (NFTs). However, unlike utility currencies like Ethereum, meme coins often lack specific blockchain features or practical use cases.
For instance, Ethereum's ether is used to compensate validators for verifying transactions on the Ethereum blockchain, while meme coins typically rely on other blockchains. For example, Shiba Inu is an ERC-20 token running on the Ethereum blockchain.
Meme Coin Risk and Volatility
CoinMarketCap, a cryptocurrency aggregator, lists over 1300 currencies in its Meme Coin section. However, a significant number of these coins are illiquid and essentially worthless, occupying approximately nine pages on the platform.
Only a handful, including Dogecoin, Shiba Inu, Bonk, Pepe, and around 50 others, exhibit daily trading volumes exceeding $1 million. Despite their popularity, meme coins are generally regarded as high-risk and volatile assets.
Some observers link meme coins to elaborate pump-and-dump schemes, as they occasionally serve that exact purpose. In other instances, they begin as jokes but attract a following of investors and users.
Trading meme coins can be extremely lucrative if you can time them well. For example, between November 2020 and May 2021, Dogecoin grew by over 27,000%. In 2021 SHIB, grew by over 1,200% in just a month. BONK grew by over 13,000% between October and December 2021.
However, just as meme cryptocurrencies can spurr huge growths, they can also experience severe crashes. Meme coins generally lose more than 90% of their value in bear markets.
Therefore, while you can make a lot of money with meme coins, you can also lose a whole lot. Thus it is advisable to never invest a large part of your portfolio in meme coins.
Aditionally, distinguishing between meme coins, scams, and legitimate cryptocurrencies can be challenging. It is advisable to compare a coin's whitepaper (e.g., Ethereum's) to a meme coin's whitepaper (e.g., Bonk Coin's), examine project development on platforms like GitHub, and review discussions on social media platforms such as Reddit.
Pros and Cons of Meme Coins:
Pros:
An engaging way to explore cryptocurrency and blockchain technology.
Potential for huge profits.
Opportunity to participate in an active investing and trading community.
Cons:
High risk and volatility.
Susceptibility to accusations of pump-and-dump schemes.
May pose technological complexities for some users.
Acquiring Meme Coins
To purchase meme coins, you can use cryptocurrency exchanges. Centralized exchanges like Coinbase, Crypto.com, Binance, Bitvavo, and Kraken allow direct buying and selling with other users through their online platforms. Decentralized exchanges (DEX) such as PancakeSwap require a cryptocurrency wallet to maintain custody of the currency outside of a cryptocurrency exchange.
Creating Meme Coins
Creating a cryptocurrency is technically feasible for those with the requisite knowledge. However, transforming a coin or token into a widely recognized meme coin is a complex feat achieved by only a few projects.
Bottom Line
Meme coins offer an intriguing cryptocurrency asset class that come with huge profit potential, along with substantial risks. For most investors, it is advisable not to invest more than one can afford to lose. However, there exists a chance that selecting the next big meme coin before online enthusiasts propel it to extraordinary heights could lead to substantial gains.
