Rise of Memecoin: A New Opportunity or Another Ponzi Scheme?
Cryptocurrency is probably one of the best innovations since the internet that probably has changed a lot of aspects in our life. And just like every other innovation, there will be some people that misuse this technology by developing meme coins that promise you 10x or even 100x your investments although they don’t have any utility or fundamentals whatsoever. With the recent incident of the Squid Game token that went bust in a matter of minutes, we ponder and ask ourselves what is this meme coin and why is it growing so rapidly? Is it a profitable opportunity or just a mask of another ponzi scheme? And how to choose the right crypto asset for your portfolio?
What is Meme Coin and Why is it growing?
When we think about crypto assets like Bitcoin or Ethereum, they were created to improve our financial industry by introducing valuable innovations such as DeFi, Smart Contracts or Dapps and many more. This concept is also the reason these coins are so valuable for people to use them within the network and investors. A meme coin or token on the other hand is quite literally the opposite of this where they are created for fun and sometimes without any proper fundamentals whatsoever.
People got hooked to this meme coin concept ever since the introduction of Dogecoin in 2013 which is based on the popular meme of the Shiba Inu dog. This coin was created by Jackson Palmer as a joke for investors who invested their money recklessly in the Crypto Market but it slowly catches the hype of people. This hype was slowly bolstered by a range of famous celebrity backers including Snoop Dogg, Gene Simmons Mark Cuban and, significantly, Elon Musk, who highlighted their enthusiasm for the project and claimed that he will send Doge price to the moon even though it is practically unclear if he owns it on his portfolio. Since the start of the year, the value of DOGE has risen by over 14,000%, before shedding more than 60% of its value.
This prompted a huge emergence of meme coins such as Shiba Inu, Floki Inu or DogeElon Mars just to name a few, that claims to be the next Doge or even a better version Bitcoin with a 1 page whitepaper and most of the time with no real sort of fundamentals or real life utility to back it up. Most of the coins or tokens simply thrived and relied their value on the power of their community or the greater fool theory.
With currently more than 50% of ICOs that turn out to be scams and a bunch of meme coins with various different names generated every day, these meme coins have turned from a joke to being a great part of the crypto space. Some of the reasons these meme coins keep growing in the crypto space are as follows:
- Unclear Regulations: The Crypto is still in its infancy stage and the rise of meme coins is a clear indication why it lacks a proper structure. There is no real way to define what is legal or not, which is why these meme coins keep crossing the border on what a right crypto asset should be. While the current regulations only oversee the exchangers, there should be further regulations on what fundamentals a crypto should have that limits these memes coins from being listed on Exchanges or Ranking sites for everybody to see and eventually lose their money.
- Less Barrier to Entry: It is literally quite easy to create a coin or a token with or without any proper utility or fundamentals and to be listed on market cap rankings. As to create a token you only need to get to a token generator which you will then do an ICO or Airdrop to grow your community and before you know it you can get listed on exchanges and Market Cap rankings. It literally costs nothing to generate and get your token listed so that explains why these meme coins with various different names keep on growing and why there are so many fraud cases happening in the crypto market. The exchanges or listing sites should do a better job in verifying the fundamentals of the coins or tokens that are listed on their platform.
- Lack of Education on the Crypto Space: Crypto may be just 13 years old but the number of Crypto Investors that have dipped their toes on this space has been increasing year on year. Even though a lot of Crypto Investors might consider themselves experts and still view the space as a ‘get rich quick’ scheme and invest on coins that have no fundamentals. This is why more education should be there to not only understand the Crypto Space and evaluate the fundamentals of an asset to invest on. With more education, it will enable investors to be smarter, and so reducing the amount of investments in these meme coins and eventually limit the number of these meme coins from appearing.
Is it another Ponzi Scheme or can you really profit from it?
The question whether you can profit or not from these meme coins, has to also go back to the question of what kind of investor you are? If you are a trader with a proper enter and exit strategy, you might be able to increase your portfolio by 100% or 1000% and that is a remarkable return that you won’t get in any other financial market. But if you are an investor that lives paycheck to paycheck, these memecoins would really not be a viable option.
What we need to understand is most of these meme coins are heavily dependent on the community and that means their value is not reliant on the utility or the breakthrough technology they possess but rather the relation of its demand with supply and how much the community or external influence can sustain its value.
Firstly most of these meme coins/tokens would have large or sometimes unlimited supply so it will take a huge demand from the community to keep the prices up and we will never know how long can the community keep up with it. And secondly these outside influencers or celebrities are only leveraging their stardom to increase their profits means they wouldn’t be responsible if any of these meme coins/tokens go bust.
And back to the question whether meme coins are ponzi schemes or not? Now the definition of a Ponzi scheme is an investment scam that involves the payment of purported returns to existing investors from funds contributed by new investors. With the Crypto space in its infancy and these meme coins relying on the next fool who will purchase those coins for a higher price, it’s up to you to judge whether it’s a ponzi scheme or not. You might be able to make quick bucks but in the long run it might not be a sustainable option for you, as the only one who will profit from this meme coins are the developers who practically create these coins/tokens for free and can dump the coins anytime as it will cost them nothing to do so. So the next time you want to invest in a coin/token that starts with the name of a “Dog” or a famous “Netflix show”, do your own research before you risk your life savings.
How to pick the valuable coins from a haystack of shitcoins?
With all the growing meme coins, it doesn’t mean there are no valuable crypto assets that you can find out there. Now it might need a little research to get these coins which come with a breakthrough innovation and great utility but it would be worth for you all HODLers out there. Here are some things you need to consider when looking out for these valuable crypto assets:
- Do those Crypto Assets have any Utilities?
Back to why Cryptocurrency is created to be a payment system, utility should be an important factor to be looked at. It is really useless if a crypto asset has an amazing technology or 100-page whitepaper and they cannot be used as a payment method for anything. Utility could be in the form of being used as a payment method within their network such as ETH, BNB or in other networks like USDT, USDC and real life utilities like Bitcoin in EL Salvador. Cryptocurrency could grow on communities but Utility is what gives people an importance to HODL it.
2. Does the Crypto Asset outline a business plan which is logical?
You can find all the information on their business plan and developments from their white papers. Although most people rarely read the whitepaper and only focus on the charts, we need to understand that these are highly volatile digital assets and you can only trust your investments if they have proper fundamentals. These fundamentals also have to make sense because it is redundant if they have an impressive 100-page whitepaper that is filled with unrealizable ideas and development. So before you make any investment in crypto assets, do read the whitepaper and whether their ideas resonate with you then only invest in the next ‘Bitcoin’.
3. Is most of the supply held by a few wallets?
You also need to do your due diligence on the supply side of the coins you are going to invest in and you can use sites like EtherScan or Block Explorer to help you with this task. You need to look at the amount of supply the coin has and how much percentage of these coins are owned by the whales or the developers. If most of these coins are held by a few wallets then it could be a red flag as these coins could be released or sold to dump the price at any time.
4. Do they have the proper legalities to back them up?
When mentioning Legalities, you can always mention Bitcoin which doesn’t have a corporation and the developer is still anonymous until now but a proper structure of legalities in place gives an assurance to the legitimacy of the project. So make sure that the Crypto you are about to invest in has proper legalities set up in a country that is well known to uphold the law and has pro — crypto regulations.
5. Can these Crypto Assets sustain their value?
The Crypto Asset also needs to be able to sustain value not only for a year but for a much longer time period. Make certain that the Crypto Asset you are investing not only has a great plan for a year but is also willing to redevelop and innovate themselves to keep delivering value to you over time. The Cryptocurrency should be able to stay top 10 on Coin Market Cap for 20 years to come with the next blockchain technology to revolutionize the next generation and the up to date utilities.
We in Nagaya Technologies Pte. Ltd build the world’s first Hybrid Crypto Asset Nagaya that is designed with Gold as its backup asset and utilities to provide enormous value to our users and holders. Our vision is to empower transparency regarding legalities and all the updates on Nagaya so all our Holders understand the Crypto Asset they are investing in and on what makes us special from the others. For more information regarding on the latest updates on Nagaya and our whitepaper, you can visit us at nagaya.io
Or you can talk to us at t.me/nagayaofficial