Are Dog Meme Coins Worth The Risk?
I was at the pub with friends a few months ago, back when bitcoin was under $40K. The topic of crypto came up. It then moved quickly to meme coins.
One of my mates said he had bought £1,000 worth of Shiba Inu tokens earlier this year. He is now up over 10 times that. Not too shabby. Of course, he needs to take profits to realise that!
This mate – let’s call him Bob – bought Shiba in July this year, and his investment is up about 1,000%. But if he had bought in February, he could have retired on his own island.
The chart below shows why:
What are meme coins?
Meme coins are digital assets that are based on memes – or jokes. Dogecoin is a popular example here.
According to Forbes Magazine, Dogecoin was invented in 2013 by IBM software engineer Billy Markus and Adobe software engineer Jackson Palmer. They created it as a joke at first but became surprised when people started using it.
Fast forward to the present day, and Dogecoin is the 10th largest cryptocurrency in the world by market size – right behind Siba Inu at number 9. This seems a tad absurd when you consider that both Dogecoin and Shiba Inu have ‘mediocre’ underlying technology at best.
Why have meme coins done so well?
We live in the information age, where hype spreads fast. When the price of a meme coin goes up considerably, this attracts mass media attention.
In other words, the price goes up because everyone sees the price going up, and they buy-in. This drives the price up further, which creates more news hype and more buyers. And so on…
But apart from the hype factor, are there any fundamental reasons why certain meme coins have returned so much to investors?
In a Business Insider article, John Wu, president of Ava Labs, suggests that meme coins prices are “driven by culture and represent an underlying theme or movement, rather than special technical use cases.”
This makes sense to some degree. Although, some meme coin projects do have ambitious development road maps. For example:
- Shiba Inu has over $500 million of TVL locked in its DeFi protocol, Shibaswap. Here, Shiba holders can stake, farm, and lock up tokens to earn returns. They can also trade NFTs.
- Floki Inu is building an NFT gaming metaverse and merchandise marketplace.
Are dog coins worth the risk?
The largest dog coin projects have already reached incredible market values. Shiba Inu and Doge are now each worth over $35 billion in market cap.
This is insane when you consider that a project like Polkadot has a market cap of around $45 billion. Polkadot is a groundbreaking crypto technology. Dog coins are not.
This suggests that the upside for Shiba and Doge is limited while the downside risks are high.
Of course, there are dog coins with much lower market caps that may one day compete with the big dogs. But these have many other risks. They are early stage and there is no guarantee they will ever get listed on major centralised crypto exchanges.
Personally, I threw some ‘fun coupons’ into Floki a while back, which turned out OK. But I would never invest a large sum of money into these.
I also did the same with Dinger Token. It’s a cat token, just in case the cats start chasing the dogs.
Disclaimer: Nothing you read here is investment advice. It’s just for information and entertainment. At the time of writing, I hold Polkadot, Floki and Dinger Token.