You can question the validity of meme coins, but you can’t question the cold, hard cash that they have printed for some investors. Elon Musk doesn’t question these meme coins either and his involvement may be enough to attract more people’s attention to these assets.
The tech billionaire first touted Dogecoin in 2019, according to CNBC. His promotion of this cryptocurrency became so attention-grabbing that he hosted a Saturday Night Live (SNL) episode as “The Dogefather.”
While Dogecoin is the most notable meme coin Musk has promoted, he changed his X account’s name to Kekius Maximus on New Year’s Eve to promote a crypto by the same name. That meme coin surged by more than 4,800%, per Unilad Tech.
Although that’s a life-changing gain in such a short amount of time, meme coins aren’t a golden ticket to financial paradise. These are some of the things you should consider before investing in meme coins.
Although there are speculative stocks that investors hope will produce tremendous revenue growth, meme coins offer speculation without fundamentals. Meme coins derive their value based on how much people like them. These assets don’t have any utility or the ability to appreciate beyond what people think of them.
If a meme becomes more popular, the meme coin may rise. However, that same meme coin may crash if the underlying meme loses popularity. Meme coins are ultimately a popularity contest without fundamentals that go much beyond technical indicators and how people feel about the asset at any given moment.
Meme coins aren’t a great place for your nest egg. It’s better to put your money into proven assets that have fundamentals, such as financial growth, partnerships with corporations and a history of rewarding investors.
Meme coins aren’t completely worthless and they can be the dream asset for some traders. Most traders look at technical indicators instead of fundamental analysis, especially day traders. These same traders benefit from volatility, as sharp price movements can offer quick profits that you won’t get from trading bonds.
In that sense, meme coins may be worth a closer look. Some meme coins go up by 100% within a week. While that’s an extreme scenario, it indicates that meme coins are a viable trade. Crypto traders can allocate their capital across several meme coins to increase the likelihood of having a meme coin that garners substantial momentum.
Holding several meme coins also limits your losses if one of your holdings plummets. Since they have very little value beyond their memes, these assets are essentially hot potatoes. You can make a lot of money with good trades, but you don’t want to be the one caught holding bags.
Many investors used this line for bitcoin back in its infancy and actually investing at that time would have yielded tremendous returns. However, bitcoin has more utility due to its limited supply and the fact that many merchants accept bitcoin as a payment method.
Investors can make a stronger argument for holding altcoins that offer utility, but meme coins are a different story. There’s no utility to them beyond the meme, so you should only invest as much as you are willing to lose.
That means you should max out your retirement accounts and put some money in your brokerage account before you consider meme coins. It’s similar to gambling, so you shouldn’t have a strategy for getting rich that revolves around buying and holding meme coins.
