Stop Losing Money on Meme Coins
Bitcoin has been the longest standing cryptocurrency to date with a launch back in January of 2009. $BTC has been bought, sold, mined, and transferred over many years. Ethereum, ETH, is also a trusted name in crypto that has stood the test of time.
These networks have been proven to be reliable because so much technology has been built on both blockchains. Even though Bitcoin is proof-of-work and Ethereum is a proof-of-stake consensus algorithm, each chain is recognized to be a trustworthy contender in the crypto arena.
What Are Meme Coins?
In cryptocurrency, “meme coins” are digital assets created primarily as humorous or ironic projects, often lacking the utility and long-term vision seen in major cryptocurrencies like Bitcoin or Ethereum. Unlike traditional cryptocurrencies designed with specific functions (such as Ethereum’s smart contracts or Bitcoin’s store of value), meme coins are generally rooted in online culture and thrive on their appeal to social media trends.
For example, Dogecoin (DOGE), the original meme coin, began as a joke, inspired by the popular Shiba Inu “Doge” meme. But thanks to the power of social media, high-profile endorsements, and a bit of luck, it skyrocketed to billions in market cap, sparking the creation of other similar tokens.
Many of these crypto meme coins lack robust technological foundations, making them highly susceptible to volatility.
What Is Liquidity in Meme Coins?
Liquidity refers to the ease with which an asset can be bought or sold without significantly affecting its price. In the context of meme coins, liquidity is crucial because it determines how easily you can enter or exit your position. Meme coins with low liquidity often experience extreme price swings, as large trades can have a significant impact on their market price.
For instance, when a “whale” (an investor with a substantial amount of the coin) buys or sells a large amount, the price can soar or plummet dramatically, leaving smaller investors vulnerable to sudden losses.
When considering meme coins, evaluating liquidity should be a priority. Coins with higher liquidity are generally less volatile and easier to trade. However, many meme coins operate on decentralized exchanges, where liquidity can vary significantly, depending on factors like the size of the coin’s community and interest from retail investors.
Low liquidity also increases the risk of “rug pulls,” where developers or large investors sell off their holdings en masse, leaving other investors with worthless coins.
As of recently, meme coins have been popping up left and right such as Floki, RichQUACK, MonaCoin, Shiba Inu, and of course, Dogecoin. These coins are created usually to be funny, with their total supply set ridiculously high which then causes their value to be, in many cases, fractions of a penny.
$PEPE, a popular meme coin, has experienced a highly volatile month as long-time hodlers of the coin made more than 10x in a 48hr span after it soared to an all-time high of 0.000004213.
The parabolic rise in value was coupled with an equally substantial correction as new hodlers witnessed almost a 10x loss the following week. Cryptocurrency markets are volatile, as shown in this example, as no one can accurately predict the top or the bottom of a particular coin.
Tips to Minimize Losses When Investing in Meme Coins
If you’re considering meme coins as part of your portfolio, there are several strategies to mitigate risk:
- Do Your Research: Investigate the project’s legitimacy, team, and community support. Transparent and active development teams and robust communities can help reduce the risk of scams.
- Check the Liquidity: Understanding what liquidity is in meme coins can help you gauge your risk level. Coins with low liquidity can be harder to sell without incurring a loss, so look for coins with moderate to high liquidity if you plan to trade them frequently.
- Limit Exposure: Invest only what you can afford to lose. Treat meme coins as a small portion of your overall portfolio, balancing them with more stable assets to reduce overall risk.
- Stay Informed: Follow updates on the project and be aware of broader market trends. Since meme coin prices can be heavily influenced by social media, knowing the latest news can help you make informed decisions.
Avoid FOMO: Resist the urge to invest solely because of social media hype or the fear of missing out. Rushed decisions often lead to losses, especially in the highly volatile world of meme coins.
What is in store for meme coins in the short term and long term future? Another dramatic launch to the moon? Wouldn’t it be convenient to not have to worry about the answer to that question?
With the help of an AI-based crypto trading app, Stoic, the guesswork is off the table. Stoic automatically rebalances a users’ portfolio and trades only reliable altcoins. It is great to know that even in the midst of a volatile market, a solid level of trust still remains.
Don’t be one of those unfortunate traders who experiences a 10x loss on a meme coin that has little to no true utility. Take advantage of highly efficient machine learning at your fingertips before the next bull run.
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Author:
✍️ Head of Content @ Cindicator
📊 Certified Bitcoin Professional
🔐 Blockchain Chamber - Chapter President
Who is Cindicator?
Cindicator is a world-wide team of individuals with expertise in math, data science, quant trading, and finances, working together with one collective mind. Founded in 2015, Cindicator builds predictive analytics by merging collective intelligence and machine learning models. Stoic AI is the company’s flagship product that offers automated trading strategies for cryptocurrency investors. Join us on Telegram or Twitter to stay in touch.
Disclaimer
Information in the article does not, nor does it purport to, constitute any form of professional investment advice, recommendation, or independent analysis.