Memecoin Trading: The Ultimate Guide to Tokenized Gambling

Priced in penny range, just like penny stocks, many memecoins represent the cheapest entry into the world of cryptocurrencies. They attract capital for the same reason the lottery attracts ticket buyers – the potential to turn tiny investment into a huge return.

Memecoins, a class of cryptocurrencies inspired by internet memes and typically characterized by high volatility and low liquidity, have recently seen a surge in popularity, largely driven by traders seeking to capitalize on short-term price movements. However, these tokens also come with a unique set of risks and challenges.

Coingecko data shows that memecoins now collectively account for over $102 billion in the total cryptocurrency market capitalization of $3.62 trillion. Among them, Dogecoin (DOGE) and Shiba Inu (SHIB) remain the top picks, boasting market caps of $22.2 billion and $18.2 billion, respectively.

But a new trend has also emerged with the launch of the Official Trump (TRUMP) coin, which quickly ascended to become the third-largest memecoin by market capitalization, currently valued at $5.9 billion. Together with seven other memecoins, each boasting a market cap exceeding $1 billion, DOGE, SHIB, and TRUMP are now the top choices among 1,362 digital assets in this highly speculative category.

RISKS AND REWARDS OF MEMECOIN TRADING

Memecoins, often likened to penny stocks due to their low liquidity and high volatility, are typically driven by "vibes" and short-term speculation, rather than fundamentals like a computing network or a solution to a problem.

However, these vibes can be powerful, as in the case of Elon Musk, whose tweets have significantly influenced the price of Dogecoin. Similarly, the TRUMP coin can now be seen as a gauge on the President's acts in office.

But it's crucial to note that these vibes tend to drive the initial price spike, which is typical of all memecoin launches. In the worst-case scenario, many memecoins turn out to be rug pulls, like the Hawk Tuah (HAWK) coin, where the insiders/issuers, who control the token's supply, can drain the liquidity at will, leaving traders with worthless coins.

This is why memecoin trading should be viewed as a form of gambling, with the house (token supply controllers) being the most likely winners. But is there a way to offset memecoins' volatility and make it lucrative?

TIPS FOR PROFITABLE MEMECOIN TRADING

Memecoins are essentially images from social media that get a blockchain code, and people trade the tokenized meme based on its virality potential. If the virality is there, then the memecoin is considered to have staying power – making it less likely to hold a deflated coin never to go back up.

Hence, it's often recommended to buy memecoins that have a strong community and wide appeal. But this should be taken with a grain of salt, as evidenced by the Huawk Tuah coin.

Haliey Welch, the OnlyFans model behind the HAWK coin, meticulously crafted her public appearances and podcast to promote the launch, which ultimately led to her tokenholders getting burned.

The problem is, her entry into the public was carefully engineered, from her public appearances to her podcast. In other words, she was astroturfed. This is an important distinction to make as organic growth is more likely to have staying power. 

In the case of Welch's memecoin, HAWK tokenholders mistook strong community for astroturfed social media engagement, which was built from the initial organic wide appeal. As a result, many served as exit liquidity.

Therefore, it's preferable if one cannot pin down memecoins to specific personas. After all, it is then all too easy for them, or those around them, to exploit the attention.

At the same time, this doesn't apply to the TRUMP coin because President Trump is not just any persona. He has the weight of the White House behind him, attached to all the expectations and speculations that come with such a lofty position of power.

In contrast, memecoins serving generalized memes/sentiments, tend to have waves of bottoms and tops, which then serve as additional opportunities after the initial FOMO price spike.

Nonetheless, memecoin investors should always conduct due diligence and see the memecoin's tokenomics and supply unlocks. This verification is one of the key benefits of blockchain technology that should be leveraged.

Blockchain explorers such as Etherscan, BscScan or Solscan make it easy to see the percentage weight of token holders, wallet activity and locked liquidity, which could all serve as rug pull indicators. Likewise, Token Sniffer from Solidus Labs is a valuable tool to check for such signs.

CONCLUSION

Priced in penny ranges, just like penny stocks, many memecoins represent the cheapest entry into the world of cryptocurrencies. They attract capital for the same reason the lottery attracts ticket buyers – the potential to turn a tiny investment into a huge return.

Therefore, memecoin exposure should be considered the same, as money lost. A more promising approach would be to invest in general-