There are well over 300 meme coins circulating the crypto market. They're an integral part of the crypto economy and are here to stay. We've seen some meme token hypes in the crypto space lately, with the Bonk token surging the Solana ecosystem.
What are meme coins, and are they good investments?
Any information you read on the Moonly blog isn't financial advice. Thus, Moonly isn't responsible for any loss incurred from an individual's financial decision.
What Are Meme Tokens?
Meme coins are non-utility, often hyped tokens that branch out from other cryptocurrencies or stand as independent projects. Meme tokens are usually worthless and sometimes regarded as shitcoins, as the cryptocurrency community only trades them for the short term.
While many meme coins circulate in the crypto market, only a few receive long-term popularity. Some experts also think of them as Ponzi schemes since they're worthless.
There is much skepticism around meme tokens. But regardless of how people perceive them, they're what they are—hyped tokens with a high potential of getting dumped.
Meme tokens typically witness short-term success, and investors leverage them as a means to quick cash. Although valueless, meme tokens sometimes jet out as side projects to push a crashing cryptocurrency—as seen recently with Bonk, the Solana dog token.
Why Are Meme Tokens Volatile?
Regular cryptocurrencies are undoubtedly volatile. But meme coins are even more volatile. As mentioned earlier, meme coins receive short-term hypes. This often results in a seemingly pump-and-dump scheme.
Besides the hype, the number of meme coins released per time is typically much and unaccounted for, resulting in inflation and volatility. For instance, according to CoinMarketCap, the number of Solana's Bonk tokens in circulation is 100 trillion, while there are quadrillions of the Shiba Inu token in circulation.
This is typical of meme coins. Worthlessness is inevitable with such over-circulation.
Are Meme Tokens Worth Investing?
The success of any crypto project hangs on many factors. A solid roadmap and excellent marketing strategy are some essential success drivers.
As for meme coins, even if there's a roadmap, they don't aim to deliver any valuable utility to the community. While a meme token might rise in value with time, it usually stays lesser than a penny. That doesn't make them a bad investment.
Relative Value Over Price
If a meme token has a low floor, you might consider its relative value to its parent token. For example, you could swap 1 Sol for around 7 million Bonks during the first few days of the meme token. As the meme token increased exponentially in value relative to Sol, people started swapping it back to Sol. Thus, if you bought 7 million of the meme token at 1 Sol earlier, you might sell at 3 million Bonks per Sol the next minute. That's 57% profit.
That's how rapid profits can come when investing in meme coins. However, the probability of a meme token rising with time is typically low as the market corrects the pump over time. This usually results from reduced hype, low trade volume, and over-availability.
We're not ruling out the possibility of a value rise with time, though. Besides, despite being flat in its first seven years, Doge rose to around $0.57 in 2021, rating it as the most valued coin in the crypto market.
Meme Coins Can Reduce You to Zero
While meme coins can make you get rich quickly, they can also result in huge losses. This is because their price is overly volatile.
The reason behind this is that investors and influencers often pump token prices and sell quickly while the price is high. Once early investors make their gains, they tend to run off and dump the coin, making it worthless and unpopular. This is called pump and dump.
Thus, a meme coin soaring to the moon now will stop at nothing to dive into the ocean floor the next moment.
Besides volatility issues, there are many crypto scams and rug pulls out there. It's not uncommon for meme coin developers to take a bull run with your funds. So investing in meme coins has a lot of risks.
Do Your Research
With all that said, be weary of crypto investments without a definite purpose or roadmap, as these can be risky.
And finally, while meme coins will persist in the crypto market, we can't advise you against investing or not investing. But ensure you do your own research (DYOR) for whatever investment decision you want to take in crypto.