What are Meme Coins?
Dogecoin started as a joke and was somehow legitimized by the attention of Elon Musk, who wants to send a "Doge-1 ship" to the moon. A single ironic or cryptic tweet from the Tesla boss can drive the price of a coin enormously. Doge was inspired by a meme, like gifs, images or videos are called that go viral online. This particular meme consists of an image of a Shiba Inu dog accompanied by text; the dog's interior monologue, deliberately written in broken English. Doge peaked in May, hitting $ 0.64, before plunging to $ 0.16, but has since returned to trading at $ 0.28.
Recently, another coin joined the meme coin pack: Floki. He claims to be inspired by Musk's dog Shiba Inu and has stated that he is pursuing an "aggressive marketing takeover of Europe" and that his billboards and posters of him can already be seen across the London transport network. Glen Goodman, cryptocurrency commentator and author of The Crypto Trader, said, “ Meme coins were invented as a joke. The idea was that they should just be memes of this Shiba Inu dog that people seemed to like.
"It started with Dogecoin and then Shiba Inu, which is now one of the most popular." Shiba Inu, Dogecoin's new rival meme coin, bills itself as a "Dogecoin killer". Its branding is the same internet meme dogecoin is based on, using the image of a Japanese Shiba Inu dog. It has now overtaken Doge as the most valuable meme coin after peaking 777% in the past 40 days and is now in the top 10 most valuable cryptocurrencies overall.
An investor's $ 8,000, used to purchase the coin in August 2020, is reportedly worth $ 5.7 billion. These are the types of stories that could influence the behavior of cryptocurrency speculators: attempting to get into a coin at first, increase in value, and then exit. Like Bitcoin, Ethereum, and other established cryptocurrencies, meme coins use blockchain technology. Dogecoin uses the same technology as the bitcoin spin-off Litecoin while Shiba uses the Ethereum token.
What are meme coins used for?
Meme coins may have started as a joke, but they act like other cryptocurrencies as a payment system, especially for cross-border transfers. Says Goodman: “If Elon Musk, the richest and most powerful man in the world, decides that he wants this joke coin based on the image of a dog to be the world currency, can he make that happen? I don't think we can completely discard it.
“The merit of both coins is that they are payment mechanisms like bitcoin. 'In theory, they could take the place of many of the payment mechanisms we use around the world such as bank transfers, Venmo, or Paypal. 'Imagine all these Shiba investors believe that someday we will only trade Shiba Inu with each other instead of trading pounds through Paypal. 'It's an unlikely scenario largely because very few online stores accept meme coins, making them largely redundant. Instead, most cryptocurrency speculators will view meme coins as a way to get rich quickly.
Cherry Lane Investment partner Rick Meckler said, “It seems driven by fashion buyers hoping to step in now and move on to what will need to be a new set of buyers at even higher prices. "This makes it closer to a collective market than a currency market, and as such determining value with traditional analysis seems impossible." Goodman added: “Shiba's valuation, however you look at it, is an insane valuation because… you can't spend it in stores.
Meme Coin
'I accept the possibility that if it takes off in a meme-like way… if it really captures the public's imagination and suddenly everyone wants Shiba Inu, then they'll start accepting it in stores… that's a possibility. But we have to accept that this is a subtle possibility. 'It's not a $ 40 billion valuation option. It's like a tech startup that maybe should be worth a few million at the most… you don't value it $ 40 billion when there's no guarantee it'll ever be worth anything like currency. '
According to information on Coinbase, unlike Bitcoin, which is designed to be scarce, dogecoin is "intentionally abundant". It is said that 10,000 new coins are mined every minute and there is no maximum supply. The same can be said of Shiba, with a total supply of "one quadrillion" of coins. On Coinbase, the coin is claimed to support projects such as the non-fungible token art incubator and the development of a decentralized exchange.
Do they risk devaluing legitimate cryptocurrencies?
Cryptocurrencies have largely been liquidated by institutional investors as worthless assets in their first decade of existence. However, since then, asset managers have taken a different perspective, and now more and more institutional capital is pouring into cryptocurrencies. But if meme coin prices are skyrocketing but there is very little fundamental value, does it risk devaluing the more legitimate coins?
Goodman seems to think so: “The main problem with meme coins in terms of the PR effect is that they completely distract people's attention from the truly exciting technological advancement that is taking place within the cryptocurrency industry. 'Ethereum was dubbed the world computer when it was invented because it is much more than just a currency. It is a new operating system and therefore new apps can be created on it. “This is being completely obscured by not just bitcoin, but all of these meme coins. Everyone thinks of cryptocurrencies as just pure currency and nothing else, just something you can exchange for other money. They are much much more. ' That said, long-standing cryptocurrencies may not have performed that well, but they haven't suffered from the meme coin rally either.
Many traditional financial advisors would argue that cryptocurrencies are not an investment at all, just a form of gambling or a way to indulge in ultra-high octane trading. If you accept that they are at least currencies, then people should bear in mind that ordinary investors are generally advised against trying to profit from movements in the world's national currencies. However, despite the established views of the financial world, cryptocurrencies are considered an investment by many of the people who hold them.
But cryptocurrencies are also complex and inherently volatile and as such are at the very high end of the risk spectrum. For example, for all claims this is a store of value similar to digital gold, after passing $ 60,000 in April, Bitcoin plummeted to $ 30,000 less than three months later. It then shot up over 100% to climb back above $ 60,000. Meme coins should be treated as an even higher risk.
'Never listen to people online saying that this is sure to continually increase for the next two weeks before it crashes because they are making things up. They do not know. Nobody knows, ”Goodman said. If a meme coin crashes, you can place a stop-loss order which may protect some of your money, but shouldn't be considered guaranteed insurance. A stop-loss order is an order placed with a broker to buy or sell certain security or cryptocurrency once the security reaches a certain price.
However, the problem is that if the price of a meme coin drops dramatically, the stop loss won't work. It can only work if people are willing to buy at the exact moment the stop loss is triggered. Goodman said: 'In extreme situations, there are no buyers, only sellers. Even if your stop-loss is triggered, the price can continue to fall, and 'And since the investment has no fundamental value, there is no reason why its price shouldn't go up to $ 100 billion or zero; there is nothing to stop it from going either way. So, in this sense, it is a pyramid scheme ». “It might just be a flash in the pan because the whole thing about these memes is that they're supposed to be funny, but ultimately the joke has to go away. Sure, once the joke wears off, then what does it matter? 'your platform is unable to close the trade because no one is willing to buy.
Info about Federico Lombardi
Info about Federico Lombardi
Federico Lombardi, Editor of cryptovalute.info, graduated in Computer Engineering at the Politecnico di Milano. He deals with writing cryptocurrency, NFT, Blockchain-themed content. With strong technical skills, he is one of the experts who work in the sector and also writes content on these issues.