Memecoins and investment are words you don’t often hear in a sentence together unsarcastically.
However, a year into the bear market, memecoins such as Shiba Inu and Dogecoin haven’t just survived but performed as well as, or better, than many “serious” crypto projects.
Moreover, despite the challenging market conditions, memecoins have some of the fastest-growing and most active communities in the crypto space.
While people must also recognize landmines, such as the enormous whale influence over even the largest memecoins, are memecoins a positive force for retail investors in 2023?
1. Memecoins are great for traders
Crypto traders need volatility; volatility is what makes trading a valuable market. And no type of token is as volatile as so-called memecoins, or a token lacking utility and based on a meme. (However, that definition must be revised, with several memecoins now building utility.)
“Any time Elon Musk posts a picture of a dog, that’s guaranteed 10% gains on a bunch of memecoins,” said Alex, who added that it doesn’t matter whether you think that’s a good thing or a bad thing.
“The free market doesn’t care about our opinions. And [the memecoin market] is the most free market that exists. A memecoin has almost no utility—with something so volatile, it’s the essence of the free market.”
In many ways, memecoins are similar to luxury goods, like sneakers, where prices don’t correlate with utility but with hype.
“The value is very in line with market sentiment,” said Xander.
“How does something with no utility gain value? With sentiment. And you have people in the space who know how to ride sentiment. It’s marketing, purely. It doesn’t make rational sense, but the market doesn’t need to make rational sense.”
2. Memecoins are expanding beyond just being memes
Footprint previously covered the Shiba Inu ecosystem. While the token began in 2020 as a joke, the community has since built an ecosystem over its own L2, Shibarium, including a DEX, NFT marketplace, and DAO.
Many memecoins also make charitable giving a core part of their utility.
“Even though we classify them as memecoins, if you see the progress of Shiba, they are pretty much going from memecoin to concept to doing things with Shibarium,” said Peter. “I think if you have a team that’s very loyal to the company, and they start building it, you can actually get out of that realm of memecoin to having an actual use case. That will be a game changer—moving from being a memecoin to a real company.”
Memecoins continue to excel at grabbing people’s attention, which is great during the bull market and periods of high volatility. Traders are both interested in the upside and shorting the tokens. However, the quest to build utility is necessary in order to retain value over time.
“Shiba Inu tried to do quite a few things with an NFT marketplace. Memecoins are used for humanitarian things, that can attract attention. If some organization, foundation, or independent team is investing further into some community or infrastructure, that infrastructure could be capable of providing other services,” said Alex.
“What would make the most sense for me, personally, would be video games. These are the closest things to memes and trading, in my opinion. The concept is to keep that community there, beyond trading, when it’s a bear market, or the volatility is low and it’s a boring market. P2E would make sense for something like Dogecoin, which has no cap, and can keep creating tokens.”
3. Trading memecoins requires accepting that whales make waves
The top 100 DOGE-holding wallets hold 70% of the total supply.
This is just the reality of the space. Luckily, whales are rational actors in a free market—which means randomly dumping all of their assets unexpectedly is unlikely. The growth of the community will also onboard new liquidity.
However, traders should understand the dynamics.
“I think most traders know that whales can make waves, and they’re trying to ride them, following along with the whales and making profits. It’s understood by experienced traders that that’s how you roll,” said Alex.
“You’re riding the distance between levels of liquidity on the market, added Xander.
“When it comes to speculative trading, that is your only protection, besides perhaps the information you know. Whales need to protect their interests [and aren’t just going to dump.] The protection is free market dynamics, so if you want to protect yourself, learn how free markets work.”
4. Memecoins help onboard new users into crypto
The blockchain space is filled with incredibly dense jargon and technical developments that can scare away newcomers. However, memecoins still function along the core premise of crypto—the decentralization and self-custody of value.
“They’re easy to understand, for the most part,” said Xander. “You can still use them as an exchange of value—you can send them anywhere in the world without an intermediary.”
“I think it’s really cool that we have, in the crypto space, these simpler coins that are easy to interact with. As an onramp, these memecoins are effective because there’s not much to understand about them—though SHIB is breaking this mould. You don’t have to read a whitepaper on DOGE.”
Peter also added that memecoins “provide a transition for people who don’t know much about crypto to enter into the space.
“Everyone’s heard of Bitcoin; that’s almost like the old-school stuff. But they see these memecoins, and they have these funny pictures, and it’s eye-catching. And that’s good marketing for crypto to the general population.”
“It’s a really easy way to jump in and be part of Web3. If you’re a speculative investor, you’re part of Web3. You’re helping the ecosystem thrive by participating in it. And so, I think it’s a good way to get your feet wet.”
This piece is contributed by the Footprint Analytics community.
The Footprint Community is a place where data and crypto enthusiasts worldwide help each other understand and gain insights about Web3, the metaverse, DeFi, GameFi, or any other area of the fledgling world of blockchain. Here you’ll find active, diverse voices supporting each other and driving the community forward.
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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.