Tag: pump and dump

Meme Coins – Opportunity Or Stupidity?

I am convinced that the rise of Meme Coins in the cryptospace is nothing innovative like DeFi (Decentralized Finance), but more a distraction. If the pumps going into these coins were instead going to legitimate projects, perhaps the market would be better off. Perhaps I am wrong, but when you think about it, why do coins like Dogecoin (DOGE) have a market cap of $40+ Billion (as of June 15, 2021)? I feel the same way about hard forks that could have injected more liquidity into the original coin, but instead are diverting funds away to an offshoot. There is plenty of hype behind it, and it can be fueled by public figures who have influence (e.g. Elon Musk for Dogecoin).

After the Dogecoin hype, the Meme coin mania continues with Shiba Inu (SHIB), Safemoon (SAFEMOON), Cumrocket (CUMMIES) and more dog themed coins. At first glance many would think there is no particular utility for these coins. SHIB actually wants to help protect the Shiba Inu dog breed, so it has a specific cause. Other than that it seems like a pump and dump scheme. CUMMIES offers a crypto for adult themed entertainment. SAFEMOON claims to be a DeFi token despite its classification by some exchanges like Coinmarketcap as a Meme Coin.

Critics say that these coins lack fundamentals when it comes to money supply. If you look at Dogecoin, it has no supply limit which means that it is highly inflated. Others implement a sort of burn mechanism to deflate the supply, but the total circulating supply is already very high (in the billions). It doesn’t seem to make much sense that the circulating supply is so high, but you can buy them cheaply because they are barely 1 cent in value. Buying at such low prices appears to be a bargain but with no limit to money supply, prices just don’t really increase unless there is some scarcity or deflation.

Meme Coins do not really have any ground breaking purpose other than transfer value on a blockchain. The coins target specific use cases like causes and communities for the purpose of the coin. That already gives it a use case, but it is not like other projects that have a more serious purpose. Instead, developers of Meme Coins are doing it more for fun. They were meant to be a joke for good humor. It surely does not seem like a wise long term investment or even for storing value. It can all be lost when a big bag holder dumps the market. Then you have to wait for more people to come in with their money, but there are no guarantees that will happen.

For starters, most of these coins were copied from existing projects. Since many of the top crypto are based on open source code, it is easy to copy them and create a new crypto. Dogecoin was copied from both Bitcoin and Litecoin. Another path for Meme Coin developers is the issuance of a token using a standard like ERC-20 on the Ethereum blockchain (e.g. SHIB) or a BEP-20 token issued on Binance Smart Chain (BSC). The reason they are called a meme is because they don’t offer any specific purpose other than “going to the moon”, which is the term for making money in the cryptospace. Some Meme Coin developers offer their rationale behind their coin, but many of these talking points do not have solid proof or evidence behind the theory.

The main concern is that when these coins pump, they can as easily dump. That would leave the newcomers as the bag holders until new money pumps. It is a sort of Ponzi scheme since liquidity is determined not by utility, but from hype. Those who came late give their money to those who came early during a dump, leaving newcomers rekt (i.e. losers). The system will not be sustainable unless you have new people who put money in the coins. So far, it seems to be working and there is a reason why.

First there is a community driven market that is keeping these coins alive. Without the network effect, there would be no further liquidity in these markets. There are evangelists and shillers of each coin who propagate the benefits of putting money. These groups are all over the Internet on social media sites like Instagram, messaging apps like Telegram and video streamers on YouTube. The power of the network is exponential, and this is what has led to market caps that are in the billions. There is a belief system around most crypto, including Bitcoin, and this also helps to drive Meme Coins. A lot of the enthusiasm with DOGE was led in part by tweets from Elon Musk. Entrepreneur Mark Cuban also added to the hype by accepting DOGE as payment for his Dallas Maverick’s sports merchandise.

Second motivation is the money. Obviously, there is plenty of money to be made just by looking at the market cap of the top Meme Coins. It gives many the belief that there is a chance to become rich, and that has already happened to some people. There are reports that a Goldman Sachs executive quit their job after striking it rich with Dogecoin. There are people who will get rich, but others will lose a lot of money. Those who are mortgaging their homes or selling their cars just to get into Meme Coins should be aware of the risks from price volatility in the cryptospace. There are no guarantees with Meme Coins. It is like gambling when you place your life savings in a coin with the hopes that it will increase in future value. Always put no more than what you are willing to lose, as the saying goes.

Meme coins add a new dimension to the cryptospace. I call it distraction because of the amount of capital it has taken away from the rest of the market. There is approximately $48+ Billion (based on Coinmarketcap data in June 2021) total value in Meme Coins. Some would say that money would have been better off going into Bitcoin or Ethereum. It can be an opportunity for the wise when used as a way to earn quick money from a small amount invested. You can have a million of some of these Meme Coins for less than $20 initial investment. It does become stupidity when you decide to invest all your money into one Meme Coin. There are other coins where that money could have been yielding higher profits and earning from DeFi protocols.

In seems you cannot stop people who are motivated by community and money. Greed backed by a strong support system will keep the belief in Meme Coins alive. Some jurisdictions are taking a harsh stance on Meme Coins. Regulators may determine the momentum moving forward. The SEC in the US has the power to restrict trading in Meme Coins if they deem it to be more harm than good for investors. What could be good news is if some of these Meme Coins actually do succeed not just from new users, but in accomplishing a purpose. Dogecoin is seeing some form of development in the works. In any case, be very careful with Meme Coins. Anything is possible, but it can go either way. Do plenty of research and understand the risks involved. There is just no way of knowing what will happen.

Disclaimer: This is not financial or investment advice. The information is an opinion piece for reference purposes only. Always do your own research.

Who Let The DOGE Out?

When investing in cryptocurrency, the fundamentals seem very important. How then can a coin that was meant to be a meme remain so popular it has a market cap over a $1 Billion (as of this writing)? That is a lot of value for something that has no distinct utility or feature, yet has captured a large share of the market. It is certainly FOMO for noobs. Meme coins were meant to be just for fun, and that is the image many have of Dogecoin. Yet there are some things about Dogecoin that are actually fundamentally what cryptocurrency should be all about.

First and foremost, this is not financial advice. This is for reference and informational purposes only. Cryptocurrency is very volatile and there are risks to consider when investing. This is not a direct promotion of Dogecoin, the cryptocurrency or investing in a digital asset. Instead this is a look into why it is popular and how it fits in the current cryptocurrency landscape. With that said, what is all the fuss about Dogecoin?

What Is DOGE Coin?

A meme coin is a cryptocurrency that is not meant to be taken seriously. It does not serve any purpose other than for exchanging and trading. It can be used as a form of payment for tipping or just a way to exchange value over a blockchain. It doesn’t have the core principal of being a store of value like Bitcoin, or an application development platform like Ethereum. First released in December 6, 2013, Dogecoin was just meant to be a simple P2P (Peer-to-Peer) electronic payment software like Bitcoin. The cryptocurrency got its name from the popular Doge meme which features a Shiba Inu dog as the logo. DOGE is the listing name used for the digital asset.

DOGE, while not anything sophisticated, did not initially have any sort of application other than P2P. It is based on open source software from the cryptocurrency Luckycoin and Litecoin. DOGE uses the scrypt algorithm with a PoW(Proof-of-Work) consensus mechanism. There are 127 billion coins in total supply with a 1 minute block time. The block reward for miners is 10,000 DOGE per block produced. Unlike other cryptocurrency, Dogecoin’s founders (Billy Markus and Jackson Palmer) have not continued promoting or even associating with DOGE. They have pretty much been on the sidelines, but DOGE has flourished in part due to its community.

Pump And Dump

While Dogecoin seems like a fun and trendy cryptocurrency that is nice to have, it is also notorious for pump and dump schemes. This has been encouraged in large part by users from Reddit, social influencers and public personalities that include Elon Musk. All it takes is a tweet from a well known personality, and DOGE prices on the market surge. These pumps do not seem to follow any sort of fundamentals other than the encouragement of influencers.

DOGE became a TikTok trend in July 2020, promoted by fans of the popular social media app. It began going viral as users began to spread the word through the platform. This was a push to pump up the price of DOGE and it worked. DOGE volume spiked by 683% after TikTok user urged a buying spree pump. Another surge occurred when Elon Musk tweeted in support of the cryptocurrency. That led to the value of DOGE to surge from $0.003 to $0.005. What do you think happens with all the viral videos on TikTok and tweets from Musk? It creates attention, and people will either Google search Dogecoin to learn more or ask someone they know about it. This type of news is not something you would expect on mainstream media.

These pumps are usually followed by dumps, as can be observed from the latest that occurred in 2021. This was a result of the Gamestop Short Squeeze in which retail investors were temporarily shut off from buying stocks for Gamestop. This led to users urging a pump for DOGE because at least they can buy it freely without any restrictions. It was more about making a statement to the establishment by some, but more people probably did it in order to make gains. That was exactly what happened and then came the dump. During this time (January 28, 2021) DOGE surged by 1,100% to an ATH of $0.082 but would dump a few days later.

In these pumps, many were motivated to see the price surge. However, once it reaches the highs it is really hard to control people from taking profits. After all, DOGE does not really have the same value for HODLing as BTC. You can hold thousands of DOGE in your bag, which really does not seem to be worth much. When prices surge it becomes valuable for converting to fiat, like winning money from a casino. Unfortunately this does not end well for noobs who probably got into the pump craze with no idea what was about to happen. They probably expected that their investment was going to go up, but not realizing that when others cash in the prices go back down and they can lose their initial investment.

DOGE Is In Theory What Cryptocurrency Should Be

While many would berate and laugh DOGE off as just a meme coin used for fun, it actually does have fundamental features of a cryptocurrency. People will be surprised that Dogecoin is capable of many things that modern banking systems cannot do. Dogecoin takes the innovations from blockchain technology and applies it to a community driven environment. Despite not having a platform of its own, what matters is that it provides the basic needs for cryptocurrency which is the direct and decentralized P2P transfer of value. There are also no barriers to purchase it that require proof of documentation, like with other financial assets.

Transactions in DOGE are cryptographically secured, which is important in cryptocurrency. Dogecoin uses a blockchain to allow two people to exchange or trade without knowing each other personally and without requiring permission from a third party to conduct a transaction. Today before we can purchase an item with a credit card, it actually requires permission from the issuer of the card. They can stop a transaction any time they want since it is under their control. This can happen to certain individuals who credit institutions may want to limit or target for any reason.

Dogecoin is highly decentralized after all. It is not controlled by any one entity or organization. Its founders cannot even shut it down and it is open source and available to everyone. There are no constraints to access the source code which users can do with as they wish. No one is going to stop you from buying or selling DOGE, because there are is no censorship against a user. Instead you have a permissionless and trustless system like Bitcoin that is peer to peer at best. Many do not realize that you can also use DOGE to transfer money across borders, but of course when you convert it to fiat it is your responsibility to meet KYC requirements from digital exchanges.

Banks take days or longer to settle payments. With Dogecoin it can be done much faster and at a lower cost as well. There are no middle men or third party to pay when conducting a transaction between two users. If Bob wanted to tip Alice with DOGE, he can do so directly to Alice’s digital wallet with no one to prevent the transaction or require arbiters to facilitate it. The Dogecoin blockchain network provides a neutral service users need to transfer value. So during any pump and dump, the blockchain is still being used to record all transactions in a transparent and immutable manner.

Takeaways And Closing Thoughts

Dogecoin is for the most part the simplest blockchain decentralized app for cryptocurrency. What started out as something just for fun, turns out to have a large following. What this did is foster a community of individuals that brings power to the people. We can see how much that is the case when influencers and public figures join in to participate in pushing the price of DOGE higher. Through social media and the Internet, information spreads faster and coordination becomes easier as the network provides the necessary infrastructure to allow that. Just be careful though when you participate, things can quickly change if you commit more than what you are willing to lose during pumps. It is not a good idea to invest life savings, pay checks or even mortgage a house just for DOGE. Think rationally and it should be fine.

DOGE as a digital asset is not actually worthless like so many penny stocks. It is cheap, but due to its popularity is gaining the attention of the mainstream. Many digital exchanges (e.g. Binanc) and wallets (e.g. Exodus) do support DOGE, which is why it can be purchased by many people. Developers of the Flare blockchain have announced their support for DOGE, which could introduce smart contracts to Dogecoin users. There is also interest in the gaming community to use DOGE, for online gambling, tips and purchasing game items (e.g. badges, powers, etc.). Ren has provided a path for DOGE into DeFi with their renDOGE token. This can bring more applications for DOGE when it comes to liquidity for cryptocurrency lending, payments and trading.

The interest in Dogecoin is going to help sustain the digital asset as something of value to users. This keeps the momentum of holding the coin for longer terms. What Dogecoin showed is that through a coordinated effort by a decentralized community, the market can drive the prices. That is what free market laissez-faire economics should be all about. People are free to enter and leave the market at their own will. When DOGE is surging there is no one group or individual who can stop people from buying it, like what Robinhood did with Gamestop (the reasons are due to how the current financial system works). DOGE is not to be treated as a sure bet financial instrument by any means though, it is a risk that must still be evaluated. With these new possibilities and opportunities coming to Dogecoin, who is to say it is worthless and only for pump and dumps.

Disclaimer: This is not financial advice. The content shared is for informational purposes only. Please do your own research always before investing in cryptocurrency.