What is a Meme Coin?
“Meme coin” is a phrase unique to cryptocurrency.
The first meme coin was the Dogecoin DOGE which became prominent following Elon Musk’s talk-up tweets about it.
In a nutshell, a meme coin is a cryptocurrency with no intrinsic value but emerges and becomes dominant through hype by an individual or a group of people.
Meme coin is associated with a theme, often regarded as a joke with no serious intent. A meme is the actual name of another cryptocurrency, and there are cryptos with “meme” names such as imemecrypto, pepememefrogree, and jakememe70.
Meme coins thrive on market sentiments which make them prone to price volatility, pump and dump schemes, and price instability of some sort in the market due to investors’ bandwagon effect.
In this article, I will highlight 5 characteristics of meme coins and how to trade or avoid them.
Key Takeaways
• Meme Coins are prone to high price volatility which is influenced by hype and community support.
• Meme coins are usually low cap and lowly priced, making them very affordable with an unlimited market supply like the SHIB and DOGE.
• Targeting the right entry and exit price makes the difference for investors interested in meme coins. Getting it wrong could lead to huge losses.
• It’s often safer to invest in cryptocurrencies that have proven track records and are likely free from the usual “pump and dump” scheme.
SEE ALSO: The Top 5 Meme Coins To Invest In 2022
SEE ALSO: 7 Most Private Cryptocurrencies You Should Know
Meme coins are cryptocurrencies that have been trending for a long period thanks to the backing of some crypto communities and are frequently dismissed as a farce, although some investors feel they should be regarded seriously.
Dogecoin and other cryptocurrencies have created huge waves in the crypto industry, and some investors have gained a lot of money from these investments.
The popularly known Dogecoin is the first meme coin, which was founded in 2013 as a joke based on a meme.
It came to prominence after Elon Musk began tweeting about it, and individual investors began buying it in droves.
Since anybody can create a new cryptocurrency, developers have created a host of joke currencies in the aftermath of Dogecoin.
Many of these coins were inspired by Dogecoin, with Shiba Inu being a prime and very recent example, but there are thousands of other meme coins thriving in the crypto space.
In fact, as at the time of this writing, there are over 5,000 meme coins in circulation, according to CoinMarketCap.
Let’s see more attributes of the meme coins.
Characteristics of Meme Coins You Should Know
1. Meme Coins are Inspired by Memes
With a little background on Meme coins, it should interest you to know that Memes are comical infographic characters that aim to entertain people who view or use them.
In the same vein, meme coins take after these characters and are brought into existence with the character in mind, usually by a group of individuals.
Hence, people see these coins as jokes and as something that shouldn’t be taken seriously.
2. Meme Coins are Prone to High Price Volatility
One thing to take note of here is that meme coins are community-driven. How you may ask? Well, for one, they are backed by a group of people in a community who have lent their support to the coin and not necessarily by any blockchain or intrinsic value.
For this reason, the investors jump in with both feet, and because of the fear of missing out, they invest in the coin, causing the coin’s market price to fluctuate excessively.
Also, when the dust settles, and another meme coin starts to garner attention, the trending coin gets abandoned by investors as they move over to a new meme coin currently making waves, causing a massive fall in the price of the initial meme coin.
3. Meme Coins Have an Unlimited Market Supply
It is no new that meme coins tend to have a huge or unlimited supply. Shiba Inu (SHIB), for example, has a total supply of one quadrillion tokens, but DOGE has no maximum supply and currently has over 100 billion tokens in circulation.
Because meme tokens do not have a coin-burning mechanism, their low pricing is not unrelated to their massive market supply. Likewise, millions of them can be purchased for less than a dollar.
4. Meme Coins Contain High Financial Risks
Meme coins may have recorded massive gains in 2021, but deciding to invest in these cryptocurrencies may mean delving into a lot of financial risks.
To begin with, the tokenomics of meme coins can be troubling. Take, for instance, Bitcoin. It has a blockchain, a well-written whitepaper, a mature ecosystem, and a deflationary character.
In recent years, we have also seen increased institutional acceptance of Bitcoin. However, most meme coins, in comparison to BTC, are inflationary, having no cap on supply.
Their environment, application cases, and basics are frequently established by the community’s collective jokes.
Only a handful of meme coins are made using significant cryptocurrency technologies. DOGE’s technology, for example, was adapted from Litecoin, and SHIB was based on the Ethereum network.
5. Meme Coins are Community Driven
What this means is that meme coins are backed by a supportive community with participants who may as well be responsible for their creation.
These individuals put lend their unwavering support to the coin and try to do as much as they can to make the coin trend to garner the interest of more investors.
The coins are not backed by any blockchain technology or by a defined principle written in their whitepaper.
Hence, the reason why their prices fluctuate so much is hinged on the community’s sentiment at any given time (either positive or negative).
Should You Invest in Meme Coins?
While it is possible to profit from investing in meme coins, doing so is very hazardous and more akin to gambling than actual investing.
You will be able to benefit if you purchase and sell at precisely the correct time. But who knows the correct time…can you predict that?
However, it is more likely that you will lose all or most of the money you invest.
Although cryptocurrencies are highly speculative because no one knows how they will perform over time.
However, if you do decide to invest in cryptocurrency, ensure you select those with proven track records that are more likely to rebound after a market shock or price dip.
Frequently Asked Questions and Answers (FAQs)
What are Meme Coins?
Meme coins are cryptocurrencies that are inspired by a meme. They are often created as a joke and are sometimes referred to as dismissive of mainstream cryptocurrencies.
Is SafeMoon a Meme Coin?
Yes, SafeMoon is a meme coin that is backed by social media emotion. It trades for less than a dollar and the market price is usually very volatile, typical of meme coins.
Final Thoughts
Meme coins have pretty much done well this year as some of them have recorded impressive gains.
However, they are still very risky and their prices can fluctuate at any time, so be careful to do proper research and only invest what you can afford to lose if you decide to invest in them.
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