When looking to secure exposure to crypto, most traders and investors set their sights on established coins like Bitcoin and Ethereum since these assets have a solid track record in the market, attesting their strength and reward potential.
However, these are definitely not the only options available, as the market has expanded significantly over the years and now boasts a wide range of cryptocurrencies with all sorts of different purposes, features, and uses, some of which can make for great alternatives to conventional cryptocurrencies.
When exploring the market for other promising digital currencies, meme coins might pop on your radar. These unique assets have caught the eye of many crypto enthusiasts as the meme coin frenzy has stirred the crypto pot several times already, prompted by the rapid ascent of Doge coin and other tokens in this class.
But is the occasional hype surrounding meme coins reason enough to include them in your portfolio? To find out the answer to this question, one has to examine both the advantages and the drawbacks that meme coins provide and then decide if they’re worth it or not.
The Pros
Let’s start by looking at the aspects that make meme coins an attractive option for investors. Unsurprisingly, the potential for high returns is the main reason why market players have taken an interest in this atypical asset class. Dogecoin, the initiator of meme coins, was launched on December 6, 2013, and by December 19th, it had already registered a whopping 300% increase.
This was the first illustration of meme coin’s impressive growth potential, as many others would follow over the next years. Although Dogecoin’s creators didn’t take their invention seriously and had no intentions to turn it into a notable contender, the asset managed to outshine big-name cryptocurrencies on several occasions.
Inspired by Doge’s success, other meme coins entered the market, with Shiba Inu, PEPE, and Bonk among the most notable ones. Each of these coins experienced a significant price surge at certain points in their evolution. Therefore, meme coins provide the opportunity to turn small investments into big returns by jumping in at the right time.
Although they share many features with other cryptocurrencies, being powered by blockchain technology and boasting characteristics such as decentralization, immutability, privacy,y and safety, meme coins also present very unique features that set them apart from the rest. First of all, they derive their appeal and worth from their entertainment value and community engagement, being inspired by popular internet memes and benefiting from the support of large online communities.
The hype created around these assets and the attention they get on different social platforms fuels their popularity and helps them go viral almost overnight. Moreover, many meme coins are endorsed by celebrities or influential figures, which also contributes to their appeal and leads to sudden price spikes.
Elon Musk’s tweets about Dogecoin provide the most relevant example in this respect, as they reignited interest in the coin and pushed its price to new peaks. The explosive growth that characterizes meme coins turns them into profitable investments. Another factor that gives meme coins a competitive edge is their low market capitalization and equally low transaction fees.
Unlike big-name cryptos, these humorous tokens have very low prices and market shares, even when they surge into the spotlight. This lowers barriers to entry, making them accessible to smaller traders and investors who may not afford to invest in bigger coins. At the same time, the reduced transaction fees also represent a notable perk, highlighting their practicality and turning them into a good option for cash-strapped investors.
The Cons
With all the excitement and buzz around meme coins, it’s understandable that many are tempted to invest in this crypto niche. However, before taking the leap, it’s important to familiarize yourself with the risks because meme coins score high in this respect.
It’s important to point out that meme coins are often dismissed as a joke since that’s how they started. These tokens were meant to make fun of the crypto craze, and ironically enough, they ended up being part of it. Hardly anyone expected them to have a future, but they managed to survive despite lacking intrinsic value.
Since meme coins were not created to solve any real problems and have no function apart from adding a touch of humor to the market, they are prone to speculative trading. Instead of relying on strong fundamentals, they are propelled purely by market sentiment, which is a very fragile foundation.
For this reason, the majority of meme coins have very short lifespans, crashing without ever being noticed. Without any innovative features of useful applications to ensure sustained growth, meme coins cannot last in the competitive market for too long. The few meme coins that have managed to maintain their popularity for years represent exceptions, not the rule.
Meme coins may be fun and enjoy the backing of enthusiastic online communities, but stability is certainly not their strongest suit. One can argue that volatility is a common denominator in the crypto industry, given that all cryptocurrencies experience significant price fluctuations. However, meme coins are particularly inconsistent, as their value can slump just as suddenly and unexpectedly as it spikes. Some sources state that meme coins are 50 times more volatile than Bitcoin.
This is why traders and investors are advised to be extremely cautious when considering meme coins for portfolio diversification and only invest capital they can afford to lose. This is a rule that applies to all investment vehicles, but it’s all the more important to take precautions and act with due care when the risks are high, as is the case with meme coins.
Bottom Line
Meme coins are a very peculiar crypto category that combines humor and pop culture with the capabilities and innovations of blockchain technology, offering exciting opportunities for quick gains. However, high risks are also a notable feature of these assets, which calls for prudence and care.
