Memecoins, you’ve probably heard of and disregarded them as just a fad.
But like all things cyclical, memecoins come and go as they so please. While they may not hold intrinsic value, memecoins still hold over $45 million in market capitalization. Who’s holding down the memecoin fort?
What is a Memecoin?
Memecoins refer to cryptocurrencies named after popular internet memes, characters, people, artworks, and other trends. Typically, these projects are supported by large enthusiastic online communities and are usually associated more with entertainment value than practical utility.
Memecoins are a risky proposition for many investors. Dogecoin, BONK Coin, Shiba Inu, and Pepe are popular examples of memecoins that continue to have staying power to this day.
Understanding Memecoins
Behind memecoins are the memes - popular and entertaining images or videos that go viral on the internet. As investors, here are some key characteristics that you should be wary of.
Memecoins Risk and Volatility
Memecoins are known for their high volatility and speculative nature. Their prices can undergo rapid increases and decreases based on social media trends and viral moments. On some occasions, memecoins were only meant as jokes, though their cult following has allowed the joke to grow into an actual investment opportunity.
Memecoins usually have a low price per unit, allowing investors to buy millions of tokens with relatively small amounts of money. Memecoins let investors speculate without having to invest massive sums. They’re a long shot, but one that many find worth it.
Memecoin Popularity
People invest in these coins for various reasons, including the sense of community that comes with being part of a shared joke or meme.Memecoins almost always have a strong community following, groups of people who spread the word and pump up the hype. They engage with others and create content that supports the coin.
For example, Elon Musk’s vocal support for DOGE helped propel its price from $0.003 to $0.7376 by May 2021, an increase of nearly 24,500% in two years. That said, it’s not uncommon for DOGE to lose anywhere from 10-15% its value in as little as 24 hours.
Pros and Cons of Investing in a Memecoin
Memecoins present a unique set of advantages and disadvantages that investors have to carefully weigh before diving into this high-risk, high-reward segment of the market.
Pros
High Potential Returns: memecoins are highly volatile. Social media hype and celebrity endorsements can drive these prices way up.
Strong Community Engagement: having strong active communities create a sense of belonging and vested interest in the token’s success.
Cons
Lack of Fundamental Value: many meme coins lack clear use cases or technological advancements, having been created out of entertainment value more than anything else.
Market Manipulation: due to lower market capitalization, memecoins become more susceptible to price manipulation by whales (large crypto holders).
Extreme Volatility: memecoins can fluctuate wildly within a short period, posing financial risk to investors who aren’t used to this level of market action.
Should You Invest in Memecoins?
More than anything, memecoins are fueled by basic behavioral economic principles, like Fear of Missing Out, Nostalgia, and Sunk-Cost Fallacy.
Fear of Missing Out (FOMO): The large communities around memecoins can create anxiety or apprehension in people who feel that others are having rewarding experiences without them.
Status Quo Bias: People tend to prefer things to stay the same, so investing in products that they are familiar with becomes instinctive.
Sunk-Cost Fallacy: Once you invest in a memecoin, its perceived value increases in your mind, even if the current costs outweigh the benefit. Try to view investments for their objective value.
What’s important to remember before putting money into any meme coin is that the product inherently provides no real-world value. It has no use case. There’s often no product or service behind these projects.
Memecoins may be entertaining, but no sound investor would base his strategy on entertainment value.
Peccala: A Better Alternative
Instead of taking speculative investments in memecoins, investors will be better off investing into assets or vehicles that provide real-world value.
Peccala, for example, takes into account over 130 digital assets every hour to place long and short positions that capitalize on market volatility. With Peccala, investors not only gain exposure to memecoins like WIF and DOGE but offset their inherent risk and volatility by trading more stable projects, such as BTC and ETH.
Peccala has two major trading strategies, PECH and PECM. Where Peccala High Risk (PECH) provides aggressive asset allocation to projects with higher volatility, Peccala Medium Risk (PECM) provides a less aggressive alternative with no leverage for the more tame investor.
Since inception, PECH and PECM have returned 7,584.98% and 586.55%, respectively.
You can read more about our project here.
