2021: The Rise of Meme Coins
2021, the year that saw exponential growth of meme coins. As of January 2022, the two most popular meme coins are Dogecoin (DOGE) and Shiba Inu (SHIB).
As goes the name, meme coins are the cryptocurrencies that originated out of the memes. Meme coins are highly volatile in nature unlike their other counterparts Bitcoin (BTC), Ethereum (ETH), and others. Although these meme coins originated as a joke, over the past few years they have garnished massive market value. So what exactly is driving their market value? Well, it is the dedicated community support and the hype around it. Moreover, meme coins often have a huge or unlimited supply. For example, Shiba Inu (SHIB) has a total supply of 1 quadrillion tokens, while DOGE has no maximum supply. Therefore, the huge supply means relatively low prices.
Why did Meme Coins become so popular?
In January 2021, a Reddit group joked about pumping up the price of Dogecoin (DOGE) to create a crypto equivalent of GME. This started a trend, and along with the influence of Tesla CEO Elon Musk’s tweets, DOGE price rallied and reached a new all-time high of $0.73 USD, with an increase of over 2,000% in five days. This sudden rally of DOGE brought in a huge rush of investors, especially the younger generations. Another reason why retail investors started investing in meme coins is that they typically only cost a few cents or even a fraction of a cent as compared to the rival BTC, ETH, and others.
Probable Risks of investing in Meme coins
Meme coins have seen exponential growth in 2021, but nevertheless, trading and investing in meme coins carry high financial risk. Why so? The major risk is that meme coins are heavily community-driven and are based around hype created, unlike the larger market capitalization cryptocurrencies. This volatility constantly leads to unexpected rise and fall in prices. The lifecycle of meme coins is generally short-lived. Their prices can skyrocket multifold from celebrity tweets or FOMO (Fear of Missing Out), or crash unexpectedly when the community decides to move on to the next meme coin.
1. Unlimited Supply
Setting a supply limit creates scarcity, as investors know that additional tokens will not be created after a certain point. More tokens would dilute the value of their holdings. Many of the meme coins have an unlimited supply and a huge number of tokens already floating around which creates a problem in the long-term investment.
2. Exit Scams
Many times developers launch the project, sell the coins and then disappear. Most exit scams involve a big marketing budget to promote the coin. One such example is "Squid coin" based on the popular Netflix series “Squid Games” whose value within days rocketed before plummeting to a near-zero valuation. After the market value of all its coins together exceeded $30 million, investors then discovered that they could not cash in on their gains.
3. Risk Factor in Meme Coins
Risk is always a factor when we look at investments in general, whether it is the stock market, mutual funds, cryptocurrencies, or meme coins- risk is common among all. In the case of meme coins specifically, big investors tend to shy away due to the higher risk factor.
Things to keep in mind before investing in meme coins
There are now over 250 meme coins out there, all vying for the attention of crypto investors. While many may look legitimate, a majority of meme-inspired cryptocurrencies are simply scam projects designed to capitalize on the growing meme coin trend. Below are some precautions you need to take to avoid this type of scam:
Avoid coins where developers hold most of the tokens
Learn the track record of the development team
Find out the project’s goal and the buzz surrounding it
Check the transparency and audit status of the project
And as a thumb rule, always invest what you can afford to lose.
Conclusion
2021 was a memorable year for cryptocurrencies – meme coins like Shiba Inu and Dogecoin shocked the cryptocurrency market with their growth, Bitcoin and Ethereum reached an all-time high. The meme theme cryptocurrencies have outperformed and are on the verge of outperforming major cryptocurrencies. Were you a part of this wonderful ride in 2021? Looking for opportunities in the crypto world? Check out the available opportunities here.