Understanding Meme Coins: Risks and Rewards | Dex-Trade Academy
1. Introduction
2. What are Meme Coins?
3. Why are Meme Coins So Popular?
4. Potential Risks of Investing in Meme Coins
5. An Overview of the Popular Meme Coins
6. Closing Thoughts
Introduction
If you've been following the cryptocurrency market, you might have heard about the recent explosion of meme coins. In particular, Dogecoin (DOGE) and Shiba Inu (SHIB) have gained significant attention, with DOGE ranking #9 by market capitalization on CoinMarketCap as of November 2021. Meme coins are cryptocurrencies that are inspired by memes or jokes on the Internet and social media. The first meme coin created was Dogecoin (DOGE), launched in 2013 as a parody, inspired by the popular Doge meme of a Japanese Shiba Inu dog. Meme coins tend to be highly volatile, and community-driven and can gain popularity overnight due to online community endorsements and FOMO. These coins often have a huge or unlimited supply, which explains their relatively low prices.
What are Meme Coins?
Meme coins are a relatively new addition to the cryptocurrency world. As mentioned earlier, they are digital currencies that are inspired by internet memes or jokes. The idea of creating a cryptocurrency based on a meme first came about in 2013 with the creation of Dogecoin. Since then, the meme coin market has grown rapidly, with new coins being introduced every day.
Meme coins tend to be highly volatile and driven by social media trends. They can experience sudden price increases or decreases depending on the online community's interest. Moreover, unlike traditional cryptocurrencies, meme coins often have a huge or unlimited supply. For instance, Shiba Inu (SHIB) has a total supply of 1 quadrillion tokens, while Dogecoin (DOGE) has no maximum supply. These large supplies explain their relatively low prices. Meme coins are community-driven, and their ecosystem, use cases, and fundamentals are often defined by the collective jokes of the community.
Why are Meme Coins So Popular?
The rise of meme coins can be attributed to several factors. First, meme coins are often inexpensive, making them accessible to new investors. Meme coins also have a sense of community, with their respective communities being inspired by popular Internet memes, creating a sense of belonging and support. Furthermore, the COVID-19 pandemic led to the crypto market's growth, as retail investors wanted to hedge against inflation. The boom of meme coins grew amidst this hype, with both market capitalization and variety growing.
Another reason for the meme coin's popularity is its celebrity endorsements. Elon Musk, the CEO of Tesla, has been particularly vocal about his support for Dogecoin, causing its price to rally on several occasions. Similarly, Mark Cuban, the owner of the Dallas Mavericks, recently invested in a meme coin called Iron Finance (TITAN), causing its price to increase by over 10,000% in one day. The influence of these high-profile individuals has led to an increase in interest in meme coins.
Potential Risks of Investing in Meme Coins
Meme coins might have seen exponential growth in 2021, but like all cryptocurrencies, trading and investing in meme coins carry high financial risk. First of all, the tokenomics of meme coins can be concerning. Most meme coins are inflationary with no maximum supply, and their ecosystem, use cases, and fundamentals are often defined by the collective jokes of the community. Only a few meme coins were built on the technology of major cryptocurrencies. For example, DOGE’s technology was derived from Litecoin (LTC), and SHIB was built on the Ethereum blockchain.
Another potential risk is that meme coins are heavily community-driven and are more speculative than the larger market capitalization cryptocurrencies. This volatility constantly leads to unexpected pump and dump. The lifecycle of meme coins is generally short-lived. Their prices can rocket thousands of times from celebrity shilling or FOMO, or crash unexpectedly when the community decides to move
Moreover, the meme coin market is unregulated, and there is no guarantee that the development team will continue to work on the project. Some projects may be created with malicious intent, with the developers taking advantage of the hype to scam traders. Therefore, traders should always be careful and DYOR (Do Your Own Research) before trading or investing in meme coins.
Furthermore, meme coins are often affected by news and events outside of the cryptocurrency market. For instance, a joke made by Elon Musk about Dogecoin on a late-night show caused its price to drop. Similarly, tweets made by celebrities or politicians can cause significant price movements for meme coins. As meme coins are still largely experimental, traders and investors should keep in mind that the risks associated with these coins are high.
An Overview of the Popular Meme Coins
The leading meme coins in terms of market capitalization are Dogecoin (DOGE) and Shiba Inu (SHIB). DOGE was created in 2013 as a joke cryptocurrency but has since become one of the most popular meme coins. SHIB, on the other hand, was created to rival DOGE and is often referred to as the "Dogecoin killer." Another popular meme coin is SafeMoon (SAFEMOON), which was launched in March 2021 and rewards long-term holders by penalizing those who sell the token.
Apart from DOGE, SHIB, and SAFEMOON, there are many other meme coins that use different dog breeds as their mascots, such as Akita Inu (AKITA), Kishu Inu (KISHU), and Floki Inu (FLOKI). AKITA was launched on Uniswap as an ERC-20 token in February 2021 and gained traction alongside other doggy coins. KISHU, which was launched in April 2021, has been growing in popularity and has over 100,000 holders and a $2 billion market capitalization. Floki Inu, which was inspired by Elon Musk's dog, has also gained popularity in recent months.
Closing Thoughts
Meme coins are a new addition to the cryptocurrency world, and their popularity has grown rapidly in recent months. However, investing in meme coins carries high financial risk, and traders should always be careful and DYOR before trading or investing in these coins. Meme coins are highly volatile, and community-driven, and can experience sudden price increases or decreases depending on the online community's interest.
Furthermore, the meme coin market is largely unregulated, and there is no guarantee that the development team will continue to work on the project. Some projects may be created with malicious intent, with the developers taking advantage of the hype to scam traders. Therefore, traders and investors should keep in mind that the risks associated with meme coins are high and should only invest what they can afford to lose. Overall, meme coins are an exciting development in the cryptocurrency world, but traders should always proceed with caution.
