What Are Memecoins and How to Profit from Memecoin Trends

Key takeaways

Unlike other cryptocurrencies, memecoins are typically created for humor and entertainment.

Factors driving the rise of memecoins include celebrity influence, the FOMO effect, and speculation, each manifesting in different market phases.

To capitalize on memecoin speculation opportunities, you can monitor community engagement and gauge market sentiment for price predictions, identify characteristics of promising tokens, take advantage of market interest in memecoins, and apply valuation methods.

What are memecoins

Memecoins are a type of cryptocurrency inspired by internet memes, often created by developers or enthusiasts and widely circulated through channels such as social media and online forums. Unlike other cryptocurrencies, memecoins are typically crafted for humor or entertainment without practical usage. Instead, they unintentionally offer a consensus-related investment opportunity while resonating with audiences. Some memecoins, like SHIB and PEPE, have gained significant followers and witnessed astonishing price surges. Today, meme culture has become an integral part of the cryptocurrency landscape.

Factors driving the rise of memecoins

The allure of wealth creation associated with memecoins has captivated many. So, what are driving forces behind the ascent of memecoins? This article delves into the topic based on some typical cases.

1. Celebrity influence

The influence of celebrities is most notably demonstrated in DOGE and SHIB. Elon Musk, a globally renowned figure, famously endorsed DOGE on Twitter, bringing widespread attention to the token and triggering a substantial price surge. SHIB also experienced remarkable growth by associating itself with Vitalik Buterin and Elon Musk.

2. FOMO (Fear of missing out)

Following the rises of DOGE and SHIB, many are looking for the next memecoin. Typically, memecoins boast a large total supply with numerous decimal places, allowing users to buy more memecoins with the same amount of funds. Additionally, memecoins often start with a smaller market capitalization, making them appear to have greater potential for growth. Consequently, significant price increases often ignite widespread FOMO sentiment.

3. Speculation

Initially, investors gravitated toward mainstream cryptocurrencies like Bitcoin. However, as interest waned, speculative funds shifted their focus to memecoins. In such circumstances, memecoins usually gain traction within communities, garner endorsement from influencers, and secure listing on secord-tier and third-tier exchanges. Ultimately, mainstream exchanges follow suit to compete for trading volume.

In summary, celebrity endorsements tend to have a noticeable and direct impact on memecoins during the entire market cycle, but such an impact is unpredictable and short-lived. The FOMO effect persists, primarily among newcomers when favorable market conditions arise, and becomes particularly prominent in the middle to later stages of a bull market. Speculation is often observed during the later stages of a bull market and during bearish periods when the market lacks innovation and trending tokens. A typical phenomenon in such situations is exchanges actively listing memecoins.

How to seize memecoin speculation opportunities

Predict price trends by monitoring community engagement and assessing market sentiment: Google Trends is a common tool to measure market interest in specific topics, while Twitter sentiment indicators, which help gauge participant emotions, can serve as leading indicators. Other key metrics include the number of addresses holding memecoins and Twitter followers of meme projects. Additionally, whether memecoins are distributed freely and fairly to a broader audience is a crucial factor, as free and equitable distribution often leads to increased attention and popularity.

Identify characteristics of promising memecoins: First, these tokens typically have a small market capitalization. For example, DOGE, SHIB, and PEOPLE all began with small market caps, as a large market cap can hinder price manipulation. Second, they often embody a narrative consensus value, such as DOGE's tipping culture, SHIB's development of the DeFi ecosystem, PEOPLE's purchase of the U.S. Constitution, LUNC's adoption of deflationary measures, and TSUKA's promotion of Tibetan Buddism, among others. Third, they attract attention from exchanges and secure listings. Exchanges play a significant role in boosting memecoins.

Take advantage of market interest in memecoins: As mentioned earlier, memecoins tend to become popular during the middle to later stages of a bull market. When the market lacks trending tokens, memecoins often draw speculative funds. For instance, the last bull market witnessed a rotation: cash → BTC/ETH → DeFi/L2 → GameFi/Metaverse/NFT → DOGE/SHIB/animal tokens → cash.

Use valuation methods to spot investment opportunities: Since memecoins accumulate value through consensus, the speed and reach of information dissemination are pivotal factors. Typically, a memecoin's market cap goes through several stages: $1 million, $5 million, $10 million, $100 million, $300 million, and $1 billion and beyond.

$1 million: Only a few tweets are posted besides those by the project itself; initial attention begins.

$5 million: Discussions emerge within certain Alpha communities, along with endorsements from a few influential users with followers.

$10 million: The project experiences several times or dozens of times of growth. Early players begin sharing profit-related statements, and threads and YouTube videos about the project start surfacing online. Some active communities discuss projects with profitable models and high slippage. This stage typically marks the peak.

$100 million: The project is mentioned by at least five influencers within the Chinese Twitter community, especially on Weibo, and is known by most active players. It begins listing on some second-tier exchanges. Most projects reach their zenith during this phase, like CULT.

$300 million: The project announces its listing on mainstream exchanges. For most large meme projects, such as BONK, their peak market capitalization is achieved within a few days of being listed.

$1 billion and beyond: The project announces its listing on first-tier exchanges, as seen with PEOPLE, or attracts the interest of non-crypto native players. Examples include Robinhood's listing of SHIB and Elon Musk's tweets about FLOKI.

Memecoin trading tips

Although memecoins have created wealth myths, most memecoins eventually dwindle to nothing. Success stories like DOGE and SHIB are extremely rare. Many trade meme projects only to sell them to the next buyer at higher prices. Making money by passing on your memecoin to someone else is practicing the "Greater Fool Theory." So don't hesitate to sell.

(Note: The Greater Fool Theory states that people are willing to buy something at a high price, regardless of its intrinsic value, because they anticipate that someone even more foolish will buy it from them at a even higher price.) Lastly, here are are some popular websites for memecoin trading. If you're interested in memecoin investments, these websites can help you make more informed decisions.

Memecoin-related websites:

Is the contract open source: http://tokensniffer.com

Is it a honeypot: http://honeypot.is

K-line market observation: http://dexscreener.com

http://avedex.cc

Project presale: http://uncx.network (the birthplace of babydoge and cult)