The cryptocurrency market has turned around dramatically since the 2020-2021 bull market, which saw big gains for popular meme coins like Dogecoin, Shiba Inu, and FLOKI.
Crypto Koryo, a data scientist with extensive experience in this field, explains how the market for meme coins has evolved, leading to a scenario where investing in these assets is now considered high-risk with potentially low rewards.
Are meme currencies worth investing in?
In the past, meme currencies benefited from a massive influx of retail investment and limited competition. However, the barrier to creating new coins has dropped significantly, resulting in market saturation.
“At the time, deploying an ERC-20 token was not something the average Joe could do easily. But today, anyone can do it,” Curio says.
The data supports his claims. Last month, 138 new meme coins were registered on CoinMarketCap, compared to just 18 in April 2023. This influx has dampened the potential returns of these individual altcoins. Additionally, competition has spread across different blockchain platforms, with Bitcoin now even hosting meme-based tokens.
Read more: 7 Popular Meme Coins and Altcoins That Are Popular in 2024
Investing in these currencies involves navigating a volatile market with many options. Curio advises that an investor’s portfolio can drop to zero without significant diversification.
“Given that the vast majority of these new memes are going to hit $0, you need a lot of diversification if you want to play this game. If you have too little diversification, your portfolio could hit $0 at any time,” Curio explains. Too much diversification, even 20x on one, won’t affect the P&L much.
Furthermore, the shift from a developer-based market to a retail-based market means that the dynamics of supply and demand have fundamentally changed. In 2021, demand greatly outstripped supply, but now, the situation has reversed, creating a market where supply exceeds demand.
The worrying fact is that although they can still offer great returns, the chances of success are much lower, and the risks are much higher. For most ordinary investors, the complexities and efforts required to remain profitable are daunting. Corio concludes,
“Undoubtedly, of the thousands of meme coins launched every year, few will print good numbers. The question is: How do they compare to owning Bitcoin or some blue chips?” Curio concluded.
As investors navigate this challenging market, these currencies should be treated with caution and consider whether the high risk is worth the potential low reward.
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