Memecoins have been around for slightly more than ten years. But they seem a bit unheard of or new whenever it is discussed. Why? Because people have yet to fully understand what it is or how it works.
The first memecoin to be made was Dogecoin; it started as a joke but, in a short time, gained a strong community with widespread adoption. Thus, Dogecoin became the first successful memecoin to exist. Many memecoins have risen after it, but not all have succeeded. Some notable memecoins are Shiba Inu, Floki Inu, Baby Doge, and PEPE Coin.
Whether you are a newbie or an expert trader, this article will tell you ten facts about memecoin trading. We will also share some tips about trading memecoins. Let us now get a complete understanding of what memecoins are.
What Are Memecoins?
Memecoins share a lot of similarities with regular cryptocurrencies. They are crypto tokens created just like Bitcoin, Ethereum, Solana, and other regular coins, but they are built around memes and are not limited to memes alone.
They have no real value and are based on hype. Aside from the successful memecoins, many memecoins have low trading volumes, which makes their liquidity unpredictable and a risky investment.
They are usually shared or backed by a community but have no use case. Some memecoins have a strong community and turn out to be profitable, like Dogecoin, Floki, Bonk, Shiba Inu, Pepe, and so much more, while others turn out to be a pump-and-dump scheme that rug pulls investors.
Ten Facts About Memecoin Trading
- Meme Coins Are Highly Speculative
Memecoins have no real-world applications. Unlike regular tokens, you cannot get an accurate analysis on memecoins through their tokenomics, technical and fundamental analysis as their pump and dump is based on hype, trends, and community backing.
This makes them extremely volatile, with prices often skyrocketing or crashing within hours. An example is Dogecoin, which has seen several surges in price due to tweets and adoption by Elon Musk. The speculative nature of memecoins suggests you apply caution when investing in cutting your losses.
- Meme Coins Are Community-driven
Memecoins get popular and successful, based on the efforts of social media, influencers, and online communities to market and hype them well enough for you to buy them.
Some memecoin communities go to the extent of signing endorsement deals with celebrities to attract more buyers. Platforms like X(Twitter), Reddit, and TikTok are used well enough to make some memecoins go viral.
Shiba Inu is an example of a memecoin that gained fame through social media due to strong Reddit and Twitter communities.
- High Volatility and Market Manipulation
The price of a memecoin can swing from zero to 100 in a matter of hours, minutes, and even seconds. But why? It is because they have no strong fundamentals and work with hypes and trends. Unlike regular memecoins, you can’t read the chart of a memecoin to predict a pump or dump.
Whales or large communities of a memecoin can manipulate its price by massively pumping or dumping it. You will lose all your money if the whales dump the coin on you.
- Lack of Utility and Real-World Use Cases
Many cryptocurrencies, like Bitcoin, Ethereum, Solana, Near, etc., have utility and can be used for problem-solving. This is not true for memecoins because they are created as memes or for fun and are based on hype, speculation, and community engagement.
The lack of utility is why meme coins are not widely accepted in the world today. Though some memecoins have tried to be of value by creating their blockchain, swap exchange, and NFTs, they are still not widely accepted.
- Low Entry Barrier and Accessibility
Meme coins are known to have a low entry barrier. This is because the prices are extremely low and very affordable to whoever wants to buy. You can get them easily on both centralized (Binance) and decentralized exchanges (Uniswap), allowing easy trading.
Because of how easy and cheap it is to get meme coins, this leads to reckless buying for quick profits and can lead to loss of funds due to greed and little or no research done before investing.
- Regulatory Uncertainty
It is easy for governments to regulate well-established cryptocurrencies like Bitcoin, but the regulation of meme coins is between impossible and possible. This is due to how easy it is for anyone to create a meme coin, pump, and dump it later.
China has had some success in restricting crypto trading, which also affects meme coins, but the United States and Europe seek stricter policies on them due to their volatile nature and propensity for fraud.
- Liquidity Issues and Rug Pulls
Most meme coins, especially new ones, have low liquidity. This is an issue because if large amounts of the meme coin are sold, there will be a noticeable price drop. This affects the speed of transactions and price slippage as well.
Rug pulls are also inevitable. This is where developers abandon the project and exit with investors’ funds. This is a usual type of scam you could face when trading meme coins.
- Short-Lived Hype vs. Long-Term Survival
Meme coins are bound to have a short lifespan due to short-lived hype. Once they hit their all-time high, they fade away quickly because the excitement around investing in them is gone. They also fade away due to a lack of utility or dump by developers. Successful meme coins like Dogecoin have a strong community, but meme coins like SafeMoon and Pepe are irrelevant.
- Potential for Huge Gains and Losses
Meme coins can make you rich for life if you invest early with a significant amount of money. You can also make money from it if you take profits and are not greedy.
Also, you can make huge losses, too, as the hype can vanish overnight, and the dump happens instantly. Therefore, you must actively watch your trades and know when to enter and exit.
- Meme Coins Can Influence Mainstream Adoption
Despite the origin or intention of a meme coin, it is possible for it to gain mainstream recognition and adoption. Strong examples of this are Shiba Inu and Dogecoin, as some businesses accept them as a means of payment.
Through public discussions and awareness, Meme coins can also introduce you to mainstream cryptocurrency and blockchain.
Meme Coin Trading Tips
- FOMO (Fear of Missing Out): Resist the urge to buy into hyped coins that have already been pumped.
- Ignoring Due Diligence: Always research a coin before investing, even if you feel pressured.
- Don’t Buy Based on Recommendations: Never invest in a coin solely because someone told you to.
- Invest What You Can Afford to Lose: Memecoin trading is risky, and you should only invest what you can afford to lose entirely.
- Start Small: Start with one trade at a time. Don’t be afraid to take small profits.
- Develop a Strategy: Choose a trading style based on your risk tolerance and time commitment.
- Risk Management: Use take-profit and stop-loss orders to manage risk.
- Join Communities: Connect with experienced traders through communities to learn and improve faster.
Conclusion
Meme coins have come to stay. As you are excited about them, they still remain driven by hype and community and offer high-risk, high-reward opportunities. Therefore, do not get emotionally attached to them no matter how much profit you make from them.
Smart trading needs your due diligence, risk management, and community engagement. Always remember to invest what you can afford to lose. Nothing here is financial advice. DYOR!
