The cryptocurrency market has shifted dramatically since the bull market of 2020-2021, which saw significant gains for popular meme coins like Dogecoin, Shiba Inu, and FLOKI.
Crypto Koryo, a data scientist with extensive experience in the field, explains how the meme coin market has evolved, leading to a scenario where investing in these assets is now considered high risk with potentially low rewards.
Are Meme Coins Worth Investing In?
In the past, meme coins benefited from a massive influx of retail investment and limited competition. However, the barrier to creating new coins has lowered substantially, leading to a saturated market.
“Back then, deploying an ERC-20 token wasn’t something the average Joe could easily do. But today, anybody can do it,” Koryo states.
The data backs up his claims. Last month, 138 new meme coins were registered on CoinMarketCap, compared to just 18 in April 2023. This influx has diluted the potential returns for individual these altcoins. Additionally, competition has spread across various blockchain platforms, with even Bitcoin now hosting meme-based tokens.
Investing in these coins involves navigating a volatile market with many choices. Koryo advises that an investor’s portfolio could plummet to zero without substantial diversification.
“Considering the vast majority of these new meme coins will go to $0, you need a lot of diversification if you want to play that game. If there is too little diversification, your portfolio could go to $0 anytime. Too much diversification, and even a 20x on one of them, wouldn’t impact the PnL by much,” Koryo explains.
Furthermore, the shift from a developer-driven to a retail-driven market means that supply and demand dynamics have fundamentally changed. In 2021, demand significantly outstripped supply, but now, the situation has reversed, creating a market where supply overwhelms demand.
The sobering reality is that while they can still offer substantial returns, the chances of success are much lower, and the risks are considerably higher. For most casual investors, the complexities and efforts required to stay profitable are daunting. Koryo concludes,
“Undoubtedly, among the thousands of meme coins launching each year, few will print good numbers. The question is: How does it compare to holding Bitcoin or some bluechip?” Koryo concluded.