Cryptocurrency has become one of the most hot-button investing topics that there is. Bitcoin pioneered the way, but there have since been dozens of other variations that have popped up over time, each with value and questions.
There are plenty of “meme” coins – coins created based on popular memes that have since gained value and become actual investing opportunities. The most notable is the Dogecoin, based on the Doge meme that was popular years ago.
If you consider investing in meme coins but don’t quite know what to look for, this is probably the best guide for you. Unfortunately, these are the most common mistakes that investors make regarding meme coins.
1. Knowing Credible Meme Coins
Meme coins are built around popular memes and animals, so it can be difficult to discern which meme coins are legitimate. Some are created to create engagement within the community, while others are serious investments.
Making that recognition and picking out the original meme coin investments from those that are “jokes” or meant to create engagement can be difficult. Doing the research is an important part and a necessary part of adequately investing in meme coins.
2. Not Knowing the Goal of the Project
Not every investment is created equally. When made, each has its purpose, and that purpose should be expressly stated. For instance, SHIB has a collectively shared objective of raising money to rescue stray dogs.
Not every investment opportunity has these clear goals. However, when you can find a clear, shared goal from the community, it makes it clearer to understand whether you are investing in a clear, concise opportunity or one that is less than what it seems.
3. Not Knowing the Development History
If you want to have a good idea of how a specific meme coin will do as an investment, take a look at the history of the development team. Having a good track record in the cryptocurrency world means everything for a legitimate meme coin investment.
Taking a look at the track record of the development team doesn’t mean being able to predict 100% success or failure, but it is an excellent indicator of what to expect. You generally want to avoid development teams with a shoddy track record in the cryptocurrency game because they are not generally sound investments.
4. Developers Hold Most of the Tokens
There are a few of the actual niche, questionable meme coins out there where the developers control most of the available tokens. When that is the case, avoid investing in that meme coin because it likely will not pan out.
A good rule of thumb when investing in a meme coin is that the investors should hold no more than 5% of the total tokens. It is a shady investment opportunity if they own substantially more than that. Look for other options.
5. They Don’t Verify the Validity of Liquidity Pools
When meme coins are distributed, they are generally done through automated market makers (AMM). When the token is launched, the development team then makes a new liquidity pool for the investors to purchase those tokens.
These pools are smart contracts. These allow the investor to swap cryptocurrencies without the necessity for a third party. But to do this, the development team has to provide liquidity. It is that liquidity that each investor would then trade against to get some of the newly launched coins. So make sure to verify the validity of the liquidity pools with a new cryptocurrency before investing in that coin.
One of the most challenging and time-consuming things about investing in cryptocurrency is vetting it. Knowing that you are investing in a quality coin is the most significant difference, and far too many investors jump into investing in a coin without actually vetting it.
6. Not Diversifying
We have heard so many stories about bitcoin in particular and how people have thrown every last dollar into it, striking it rich and becoming the next great success story. But what we don’t hear enough about are those who sunk everything they had into one investment only for it to fail.
Diversifying is the key to investing in anything, let alone meme coins. Not putting all of your eggs into one basket means protecting against significant downturns in the market. Unfortunately, the thing about cryptocurrency is that there will be substantial downturns. It has happened to bitcoin, and it will happen to others.
Make sure that you invest in different meme coins and spread out those investments. The rewards may not be quite as large as they would have been otherwise, but it will ensure that you have something left if the market falls and you are left holding that investment.
7. Following the Swings
This tip goes for cryptocurrency in general, not just meme coins. There are far too many people who get into investing but don’t have the patience to make it work. So instead, they watch the market intently, looking for sharp climbs where they can make money.
But investing, actual investing is about the long-term. So if you believe in investment over the long-term, hold it for the long term. Otherwise, you may foolheartedly sell early for a profit or to mitigate loss when there could be something bigger and better down the line. The key to investing, in general, is not riding too high or too low. Investing in meme coins means making your pick and letting it sit for a long while.
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