According to Coingecko, memecoins now make up $102 billion market cap out of the total cryptocurrency market cap of $3.62 trillion. Most of the memecoins are still heavily dog-theme concentrated headed by Dogecoin (DOGE) and Shiba Inu (SHIB).
However, the newly minted OFFICIAL TRUMP Index (TRUMP) coin shows a new trend emerging since its launch on January 18th. Alongside seven other memecoins above $1 billion market cap, DOGE, SHIB and TRUMP are now the top three picks among 1,362 digital assets in this highly speculative meme category.
The fact that TRUMP reached a value of $15 billion a day after launch, only to deflate to current $5.9 billion, speaks to the demand for tokenization of everything. It also speaks to the relief that SEC Chair Gary Gensler, widely viewed as oppressive and underhanded, is finally out of office.
But when it comes down to it, can memecoin trading be worth the risk? Let’s examine the cons and pros.
Memecoin Nature: Volatility on Steroids
Bitcoin has often received complaints that it cannot serve as a medium of exchange because it is too volatile. At the same time, investors have been drawn to Bitcoin precisely because its volatility offers a maneuvering space for profit-taking.
But now that Bitcoin is heavy, at a $2.1 trillion market cap, it is much harder to move that weight, making it less volatile. Memecoins picked the volatility slack and then some. Unlike Bitcoin, which aims to solve the problem of sound money through its computing network to ensure inviolability and scarcity, memecoins lack substance.
In that aspect, memecoins are best compared to penny stocks, which represent unproven companies. Like penny stocks, memecoins also typically have high volatility, driven by short-term speculation and low liquidity. But unlike penny stocks, memecoins are entirely driven by “vibes”.
It is then a matter of gauging if vibes have traction. Case in point, since Elon Musk took the Dogecoin mantle, there were many times when his tweets lacked the spark to drive DOGE price up. Similarly, the new TRUMP coin is now effectively a gauge on the President’s acts in office, whether they are popular or not.
That is, after the initial price spike of TRUMP coin, which is typical of all memecoin launches as people try to latch on the vibes potential. But in worst case scenarios, many memecoins are simply tokenized rug pulls, as exemplified by Hawk Tuah (HAWK) coin. In these scenarios, insiders/issuers in control of the token’s supply can drain the liquidity at will, leaving traders with worthless coins.
This is why memecoin trading should be viewed as tokenized gambling, with the house (token supply controllers) being the most likely winners. But, is there a way to offset memecoins’ volatility and make it lucrative?
Memecoin Trading: Signs to Look For
Did you ever encounter an image that you liked on social media, as it stated some repeatable, concise, seemingly profound message? Add a blockchain code to it and you get a memecoin in a nutshell.
People then trade the tokenized meme based on its virality potential. If the virality is there, then the memecoin is considered to have staying power – making it less likely to hold a deflated coin never to go back up. Resulting from this, it is often recommended to buy memecoins that have strong community and wide appeal. However, this should be taken with a boulder of salt.
Let’s examine why in the case of Huawk Tuah coin:
- It was derived from the virality of Haliey Welch’s humorous remark from a TikTok video, building up wide appeal.
- Haliey’s personality was perceived as likeable, down-to-earth and relatable, which was another key ingredient for virality.
- Consequently, the liquidity pool was there for the taking, ready to be tokenized.
The problem is, Haliey’s subsequent launch into the public was carefully engineered, from her public appearances to her podcast. In other words, she was astroturfed. This is an important distinction to make as organic growth is more likely to have staying power.
In the case of Haliey Welch’s memecoin, HAWK tokenholders conflated strong community with astroturfed social media engagement, built from the initial organic wide appeal. As a result, many served as exit liquidity.
Therefore, when trading memecoins, it is preferable if one cannot pin them down to specific personas. After all, it is then all too easy for them, or those around them, to exploit the attention.
At the same time, this doesn’t apply to the TRUMP coin because President Trump is not just any persona. He has the weight of the White House behind him, attached to all the expectations and speculations that come with such a lofty position of power.
In contrast, memecoins serving generalized memes/sentiments, tend to have waves of bottoms and tops, which then serve as additional opportunities after the initial FOMO price spike.
Nonetheless, memecoin investors should always conduct due diligence and see the memecoin’s tokenomics and supply unlocks. This verification is one of the key benefits of blockchain technology that should be leveraged.
Blockchain explorers such as Etherscan, BscScan or Solscan make it easy to see the percentage weight of token holders, wallet activity and locked liquidity, which could all serve as rug pull indicators. Likewise, Token Sniffer from Solidus Labs is a valuable tool to check for such signs.
The Bottom Line
Priced in penny range, just like penny stocks, many memecoins represent the cheapest entry into the world of cryptocurrencies. They attract capital for the same reason the lottery attracts ticket buyers – the potential to turn tiny investment into a huge return.
Therefore, memecoin exposure should be considered the same, as money lost. A more promising approach would be to invest in general-purpose smart contract platforms that launch tokens, such as Solana (SOL), Ethereum (ETH), Avalanche (AVAX), Cardano (ADA) or Immutable X (IMX) for blockchain gaming.
These platforms have underlying backing, developer pools and roadmaps, making them far more substantial than ephemeral vibes.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.