What is a Meme Coin?

By Michael Thorburn

Share:

Meme coins are a type of cryptocurrency that is made as a result of a joke derived from the internet. Popular meme coins include Dogecoin and Shiba Inu.

Meme coins generally gain popularity in a short period of time. They are often hyped by crypto influencers and retail investors that are looking to exploit short-term gains.

For example, Tesla CEO Elon Musk regularly tweets about Dogecoin and Shiba Inu, which can cause a significant move in the price. In October 2021, Shiba Inu surged by 91% in 24 hours following a tweet from Musk of a picture of his pet Floki, the Shiba Inu puppy, on a Tesla.

How meme coins work?

Meme coins have been in existence for a while, and although they may have started as a joke they do act like other cryptocurrencies as a payment system. Undoubtedly the most popular meme coin is Dogecoin, a peer-to-peer, open-source cryptocurrency. Launched in December 2013, Dogecoin features a Shiba Inu dog as its logo and is considered an altcoin.

While it was created as a joke, its blockchain still has merit and its technology is based on Litecoin and has the same technology behind its proof-of-work. Dogecoin boasts a loyal community of supporters, with Elon Musk being one of them, who trade it and some use it as a tipping currency for social media content, often on Twitter and Reddit.

Traders can buy and sell Dogecoin on digital currency exchanges and can store their Dogecoin on an exchange or in a Dogecoin wallet. Unlike other cryptocurrencies such as Bitcoin who limit their supply, meme coins generally have a near unlimited supply.

Whether investors can make any real returns on meme coins remains to be seen, but they are becoming increasingly popular and given their low price many investors are considering taking a chance on them. The apparent support from Elon Musk is also driving sentiment to meme coins, in particular Dogecoin.

Advantages of meme coins

The advantages of meme coins include:

Day trading can be profitable

Day trading investments in meme coins such as Dogecoin can be profitable. Investors who understand how the crypto market works can capitalize on the volatility. Those who play the market right can make significant returns.

Positive sentiment from influencers

Tesla CEO Elon Musk has voiced his support for meme coin Dogecoin on his social media, which has not only had an impact on the price around the time he has tweeted but has also increased interest in the cryptocurrency. Both of these factors could see the cryptocurrency become a good long-term investment.

Could be the next big crypto

With no limits on supply and their currently low price, investing in a meme coin now could lead to good long-term gains. Owing to its low price, investors are able to buy larger quantities of meme coins and if their future value grows even the smallest increase could pay off big.

Disadvantages of meme coins

The disadvantages of meme coins include:

Infinite supply could kill demand

Cryptocurrencies such as Bitcoin and Litecoin thrive on their supply cap. Having such limited supply creates scarcity which creates demand and it is this demand that drives up the price. But as meme coins have a nigh on unlimited supply, investors are sceptical about prices increasing massively.

Seen as a bubble

Many investors and financial analysts currently view meme coins as a bubble that will eventually crash and burn. While this may be the case, it is difficult to currently forecast where meme coins could go in the future.

Share:

In this article:

Topics:
Cryptocurrency

Author: Michael Thorburn

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.