For the past year, some meme coins, which are cryptocurrencies that emerged from internet memes, posted staggering results. Dogecoin, a token that was created as a joke and inspired by the dog Shiba Inu, rose more than 3,300% since the start of the year, according to CoinDesk data. Shiba Inu, which originated from the same dog breed, was up more than 45,500,000% year-to-date.
Such results have propelled some investors to the hunt for the next meme coin stars. However, the current market environment may not help with the rise of any new meme coins, Christopher Vecchio, senior currency strategist at Forex analysis site DailyFX, told Distributed Ledger in an interview.
“In an environment defined by weaker major cryptocurrencies, it lacks the confidence for retail investors to try to jump into a new listing and try to strike it big very quickly,” Vecchio said.
As the Fed speeds up its tapering of its bond purchase program and penciled in three interest rate hikes in 2022, major cryptocurrencies have been under selling pressure. Bitcoin is down almost 30% from its all-time high of $68,990 in November, while ether is down more than 18% from its record high of $4,866, according to CoinDesk data.
Increasing institutional participation in the crypto market might squeeze the room for meme tokens, some analysts said. “As the market becomes more efficient, and more smart money comes in, there’s less retail money,” said Jason Desimone, head of blockchain at crypto-focused software company Ubik Group. “I think we’re gonna see more value flowing to coins that have actual utility versus just a community following.”
Guy Gotslak, president and co-founder of crypto investment platform My Digital Money, disagreed. “I think in the next three to five years, more serious investors will start getting into meme coins,” according to Gotslak.
“I do see some meme coins evolving next year to potentially having more utility, such as being used for payments,” Gotslak said, pointing out that Elon Musk said Tesla would accept Dogecoin as payment for merchandise, while AMC CEO Adam Aron said the movie theater chain will accept Shiba Inu as payment.
Invest, or not, with caution
Investing in meme tokens is not always a safe bet, analysts said. “A lot of people will gamble on these coins trying to pick the next Doge or next Shiba,” Desimone said. “And a lot of people get burned along the way.”
Industry participants stressed that it’s important for investors to always practice caution when deciding which tokens to invest in, and try to steer away from scams such as a “rug pull”, which refers to the circumstances in which developers abandon a project and flee with investors’ funds.
One example is Squid Game (SQUID), a cryptocurrency that has drawn attention in part because of the popular namesake Korean TV show. The token surged to $2,857 from $39 in just three hours and then collapsed to nearly zero. On-chain data and evidence from Twitter and Telegram suggested that developers gave up the project and cashed out the tokens.
There were some early signs – some investors reported that they can only buy but not sell SQUID, while there were several spelling errors in the crypto’s white paper.
When vetting crypto projects, investors should look into the developing teams’ track record and verify if they are legitimate, Gotslak noted. It’s also crucial to look at the token’s distribution model. “You don’t want the founder team to own too many of the tokens,” Gotslak said. “Because that can be risky, right? They could just cash out and run off.”
“Make sure that not one single person has more than 5%,” Gotslak added.
A common character that defines successful meme tokens, is that they usually have a strong community around them, analysts said. “It really centers around doing something unique that really grows and engages in the community, something that hasn’t been done yet,” said Ubik’s Desimone.
The push from a celebrity such as Elon Musk could also help, according to DailyFX’s Vecchio. Usually, it is “someone who’s pumping the name of their own volition,” Vecchio said.
Read full story on Market Watch