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Memecoins have surged in popularity since Elon Musk first tweeted about Dogecoin in 2019. Today, the total market cap for this burgeoning ecosystem stands at a whooping $39.9 billion, with notable names such as PEPE, WIF, and Shiba Inu racking up hundreds of millions in daily trading volumes.
What’s even more intriguing about the evolution of memecoins is that more and more people are now embracing them as actual investment items. Initially, it would have seemed absurd to put one’s funds in an investment with no fundamentals, but with the meme culture taking over the internet, the jokes now drive the markets.
If you’re looking to join memecoin bandwagon or increase your allocation, then you’ve come to the right place. The next section of this article will highlight some of the key factors that you should understand or conduct due diligence on before rolling that dice.
Strength of the Community
First and foremost, numbers matter! Memecoins are by design driven by internet natives who most likely share the ‘fun’ in a viral joke. The more people who find the joke funny, the bigger and stronger the community.
But how exactly do you measure the vibrancy of the community? Well, there are several factors; one of them is a project’s following on social media especially on X (formerly twitter); this is where most of the crypto ‘degens’ reside digitally. Another metric would be the project’s activity in ‘under the hood’ groups on Discord and Telegram (most crypto teams and communities operate from these two platforms).
For example, Dogecoin was started as a joke in 2013 to poke fun at Bitcoin and many more cryptocurrencies that were emerging at the time. Today, this pioneer memecoin enjoys one of the biggest crypto fanbases, with a following of over 3.9 million users on X. In addition, DOGE has been endorsed by prominent figures, including Elon Musk, alongside other key opinion leaders (KOLs) within and beyond the digital asset industry.
In contrast, there are some memecoin projects that have barely made it out of the hood. Apart from speculation and hype promising over 100x, the projects do not have an organic following on any social platform. These are the types of memecoins you want to avoid at all costs.
Sound and Incentive-focused Tokenomics
The economic model of a memecoin is another important factor that one should consider before making an investment. So, what exactly does tokenomics mean? In simple terms, it is the economic design behind a crypto token; the total supply, circulating supply, distribution of the token to various stakeholders, the rate at which new tokens are emitted or phased out of circulation, and how the token gains or maintains value within the ecosystem.
For starters, you want memecoin that is generous enough to allocate some extra ‘goodies’ to its stakeholders and the larger digital asset community in the form of airdrops. A good example is the LADYS memecoin which distributed over 8.8 trillion (1% of its total supply) tokens to all $PEPE and Milady NFT holders. This memecoin project has also set aside 5% to be allocated towards adding value to its ecosystem through CEX listings, bridges, and liquidity pools.
Besides incentive token rewards, sound memecoin projects will tend to follow a deflationary model rather than an inflationary approach. What this means is that less tokens should be added into circulation over time as opposed to a situation where the number of tokens keeps increasing almost perpetually. The concept is simple; law of demand and supply – the less tokens in circulation, the higher the value is likely to be and vice versa.
Deep Liquidity
Whether or not you can immediately cash out an investment is integral regardless of the market ecosystem. Memecoins are not special in any way; in fact, a good number of people have had to watch their investments trend down to zero simply because there was no one to sell to their tokens in the hour of need. This is what is meant by liquidity and accessibility; can the memecoin be liquidated with ease?
For example, if you’re scouting for memecoin to invest in today, a simple search on crypto data platform Coingecko would clearly show how much volumes are being traded on each of the featured memecoins. Currently, PEPE is leading with a daily trading volume of over $800 million while there are some memecoins which are barely hitting the $1 million mark. While it may be more far-fetched for PEPE to do a 100x compared to a low liquidity memecoin, the former is more resistant to volatility swings.
Timing is Everything!
A difference of five minutes or even less could make a significant impact in the memecoin world. However, most people tend to act out of impulse or FOMO and end up regretting when they should be actually bidding.
Let’s take a step back to when Elon used to hype DOGE; within minutes of a mention, the price would spike and drop within the same day. Some will say volatility is a gift but those who ignore the art of timing end up catching endless knives trying to get the right entry.
Whether you want to invest for a short period or go the long haul, the most optimal allocation is when the market is apathetic and cashing out when everyone is excited. Well, it is not as simple as it sounds, but the signs will always be there.
Wrap Up
Memecoins are here to stay and we will likely see more projects popping up as the digital generation is slowly integrated with the world of financial markets. That being the case, it is only prudent for any person who considers themselves a futuristic investor to do some more due diligence on the value proposition of this niche. The factors highlighted in this article are just the tip of the iceberg; the memecoin market is constantly evolving, and the only way to win is by keeping tabs.