How would you describe memecoin in one sentence- “the harder you try to ignore, the more you think about it subconsciously”.
This statement is so true for memecoins and ever since Elon Musk tweeted in favour of Dogecoin, memecoins have taken the centre stage in the crypto market.
Speaking about memecoins, every investor in the crypto market has a different understanding of it. Some think they are crap, some take it as a gateway to becoming rich, and some feel they are wonderful trading instruments.
So, what’s the truth? Should you add it to your crypto portfolio or not? Let’s find out.
What are memecoins?
Unlike Bitcoin, Ethereum, or any other cryptocurrency, which serves a purpose, memecoins doesn’t serve any purpose or have any real-world practical use case. They are ideated mainly for fun.
Since anybody can create a cryptocurrency, memecoins are one of the ways for developers to experiment with the idea of blockchain and crypto democracy.
Dogecoin, the first and most popular memecoin was created back in 2013 as a parody and to pay a satirical tribute to the cryptocurrencies out there back then. The founders created the coin in just 3 hours and never had any big plans for it or to make it a mainstream cryptocurrency.
The other popular memecoin, the Shiba Inu was founded in August 2020 to ride on the popularity of Dogecoin. It is often referred to as the Doge Killer.
Memecoins are popular because they are highly volatile, and one can easily make money speculating their price movement. Memecoins report a wild fluctuation in prices in the short term compared to other mainstream cryptocurrencies.
Using margin, one can profit immensely from trading memecoins, but definitely, this is not for the faint hearts. Just one wrong trade, you run the risk of losing your entire trading capital. For this reason, it is sometimes referred to as a lion’s den.
One of the biggest disadvantages in memecoins are, they can be easily pumped, meaning one can easily manipulate the prices. As memecoins are worth less than a few cents, operators by buying or selling in huge quantities can easily influence the prices. Instances like tweets by influential people also affect its price.
Currently, Doge to INR price is ₹18.80 and the one year highest price is ₹58.02 and the lowest is ₹0.19. You can witness the price volatility from one year highest and lowest price levels.
For instance, every tweet of Elon Musk supporting Dogecoin has led to a huge spurt in prices in a couple of days. The tweets are always unexpected. In such a situation, traders having short positions in Dogecoin cannot even help themselves, except to book losses, because the price reaction in the market is instantaneous.
In the case of Shiba Inu, its token SHIB lost half of its value the day Ethereum’s co-founder Vitalik Buterin donated $1 billion worth of SHIB tokens to India.
You might be getting the sense of risks involved in trading memecoins. So, if you want to buy dogecoin in India or any other memecoin, you should be fully aware of the risks.
The fundamentals and coin economics of memecoins don’t make it a good option for long term investing or a smart investment option. Taking the examples of two leading memecoins, Dogecoin and Shiba Inu, both have fired up the market, but they don’t have any fundamentals.
What’s about their coin economics?
Currently, Dogecoin has a circulating supply of over 131.5 billion coins and every year 5 billion new coins are added to circulation. In the next ten years, 50 billion coins will be added, which will take total circulation to over 181 billion coins.
If you are thinking, given the growing adoption rate of cryptos, there are chances of Dogecoin hitting $10 in the next ten years, then give it a thought. The market cap of Dogecoin at $10 per coin will be $1.8 trillion, which is economically not sustainable and is illogical too.
Now, speaking of Shiba Inu, there are 1 quadrillion SHIB tokens (1 quadrillion = 1000 trillion). You can do the maths yourself and measure its growth potential.
Investing in memecoins is a sort of gambling and it is difficult to predict its future. They are exciting but lack all the features to be called a good investable asset.
Once the crypto market starts to show the level of maturity or liquidity the global stock market has, the hype around memecoins will be subdued and cryptocurrencies with real use cases will be in great demand.
If you still want to ride the crazy price movement wave of memecoins, then this goes without saying, only invest that much you can afford to lose.