The nature and culture of cryptocurrency has allowed for memecoins to exist and thrive in the financial markets. Memecoins like Doge and Shiba Inu have achieved all-time high market caps beyond the ten billion dollar mark with newcomers such as dogwifhat and Pepe climbing the ranks of the top cryptocurrencies by market cap. While it's an anomaly for coins that are meant to have no use cases to climb such heights, the memecoin narrative seems to have embedded itself into the culture of cryptocurrency.

Financial opportunities in Memecoins

Memecoins offer investors a unique playing field when it comes to the financial markets. While cryptocurrencies are filled with opportunities that are difficult to grasp for the normal investor, there are also those that make no sense to invest in. Let’s explore the opportunities of memecoins 

Exponential gains: The upside potential for memecoins are considerably more than other narratives. Memecoins start with a humble-sized market cap compared to other coins and don’t go through years worth of seed funding from private investors like other projects in crypto. Investors are able to purchase memecoins from their inception and potentially have gains similar to a lottery win.

Cultural Immersion: Memecoins are driven by a strong sense of community from its holders. As the coin is driven by the morale and humor of people, a lot of user generated content is being pushed out for marketing. Whether the coin is based on a cute dog or a humorous-looking cat, memecoins are a reflection of the crypto community’s enthusiasm.

TradeFi’s Subtle Involvement: As memecoins are manifestations of massive community enthusiasm, large institutions are slowly being persuaded into the narrative. VanEck’s MarketVector launches a Memecoin index which includes large cap memecoins is a sign of TradeFi’s curiosity in the potential of memecoins. 

The potential for memecoins are endless as they represent the creativity and eager nature of crypto-natives. As non-crypto natives find it hard to understand complicated crypto projects, a cute dog would be a much easier narrative to understand.

Risks of Memecoin investing

While memecoins present a massive potential for exponential wealth, there is a risk for losses that are as severe as the rewards promised. Memecoins are at high risks of rugging, a ploy by top holders and memecoin developers to both manipulate the price and grab all the liquidity remaining. Here are a few red flags to look out:

Extremely Volatile Market: The lower the market cap, the more volatile the memecoin behaves. A coin having a low market cap makes it easy for whales, individuals who deploy a lot of capital, to accumulate the majority of the supply. Once they decide to sell their holdings, the price would severely decline in a short amount of time. If a coin who’s top holders own the majority of the supply, it’s a sign of a coin that’s more plausible of going to zero or price manipulation.

Lack of liquidity: Low liquidity results in high slippage for those who are looking to sell memecoins. Memecoins being a new and classified as a risky narrative in an already risky asset class, there’s a lot of work that needs to be done in order to garner some trading volume. As a result, memecoins with low liquidity suffer liquidity issues in both selling and buying of a memecoin. Buyers and sellers are less likely to get an accurate amount on their orders as their purchases are segmented to how much amount gets sold or bought per price.

Prone to bad actors: Memecoins are both nonsensical and easy to make, which is a gift for bad actors. While dApps like pumpfun make memecoins easy to make while mitigating the risks of rugging, its safety and security is still not guaranteed. Memecoin developers are able to easily create multiple memecoins and repeat the process of rugging it at the expense of other holders. Ensure that the wallets associated with the development of a memecoin project are not connected with a previously rugged memecoin to avoid falling victim to a pump-and-dump scheme.

Everyday there are hundreds of memecoins being launched on different networks. Coins such as the notorious Lodicoin is hinting to see a relaunch as a memecoin which can stir up the masses who are unaware of the dangers of memecoins. Memecoins that claim that they are the solution to financial freedom are to be taken lightly as they are merely baseless optimism that is driven by attention and hype from the community.

The risks for memecoins are just as severe as the glory of the rewards. While it is possible for memecoins to grow exponentially in a short amount of time, there is also a high probability of it going to zero in a short period of time. Adequate research and risk management skills are a must to apply when venturing into the frontier of memecoins. Memecoins, despite having its own sub-narratives, are still a gamble if you are unfamiliar with its nature.

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