Memecoins can surge in value quickly but often crash hard during bear markets, hurting investors and the entire blockchain they're built on.
Solana is experiencing a surge of memecoins, similar to what Ethereum saw previously.
While potentially lucrative, investing heavily in memecoins (especially on a hyped network like Solana) is risky.
Research memecoins thoroughly, understand the risks, diversify your portfolio, and have a clear strategy before investing.
The crypto market is by far one of the most speculative and volatile financial markets out there.
Oftentimes, new investors find that it is very easy to lose everything with the wrong move, at the wrong time, or on the wrong coin:
And, this fact becomes even more clear when memecoins are added to the mix.
Anyone who has been a part of the crypto market for long enough probably knows about this trend:
Memecoin mania:
At the start of any crypto cycle, a rash of memecoins start to pop up, typically inspired by internet memes and having the potential to rally by more than 100x in a matter of days (or even hours sometimes).
We saw this trend in the last cycle, with the Ethereum network.
New memecoins (particularly Ethereum-based ones) popped up almost every day, with memecoins like Kishu Inu, Baby Doge and Dogelon Mars turning out to be not only some of the most profitable assets of 2021 but also some of the best-performing assets—OF ALL TIME!
The crash of Dogelon Mars
Dogelon Mars is down by a staggering 99.16% from its ATH according to CoinMarketCap, and is pretty much worthless now.
The same is true of Kishu Inu and hundreds of others.
It gets even crazier when we realize that each of these memecoins in their prime, hit the $1 billion market cap in a matter of weeks, bringing investors several times their capital.
The biggest downside to memecoins is that during times of market turmoil, they are usually the first to crash and burn, bringing financial ruin to both investors and the entire chain at large.
We can see, according to data from DefiLlama that the TVL of Ethereum crashed bitterly from around $105 billion in November 2021 to around $22.5 billion in December 2022.
Ethereum’s TVL decline
Given that general crypto prices crashed by an average of 80%, NFT sales plummeted and general use of Defi protocols crashed marketwide within the same timeframe, it might be unfair to pin the blame on the rise and crash of memecoins alone.
However, to a large extent, memecoin mania does have a large part to play in the whole.
This time around, we are seeing almost the same thing happen with Solana and memecoins.
By saying this, we don’t mean some of the “relatively reputable” memecoins like BONK and WIF.
We’re referring to some of the other ones that continue to pop up almost every day—the normal ones, the weird ones, and then the ones with racist, misogynistic and downright offensive themes outlined here. Did you know there was a $HITLER memecoin?
Things have become so bad, that even Martin Shkreli had to call attention to the “dangerous undercurrent of racism” permeating blockchain systems.
This cycle’s memecoin craze appears to have found a home on the Solana blockchain, as illustrated so colourfully by Solana’s co-founder, Anatoly Yakovenko in the tweet below:
The focus of this article, however, isn’t a war against racism, misogyny, or the thousand-and-one other social problems humanity battles daily.
It's about the warning signs of the devastation to come when the next bear market hits, and how vulnerable Solana investors might turn out to be.
Nobody says that apeing (or jumping into) memecoins is inherently bad.
Memecoins offer one of the quickest (and riskiest) ways to make a fortune in the crypto market.
However, if done the wrong way or at the wrong time, memecoin apeing (especially in a heated-up network like Solana) might turn out to be a terrible idea.
Scams and rug pulls may even turn out to be the least of your worries when the proverbial sh*t hits the fan.
Here are a few tips to consider before taking the deep dive:
The very definition of “apeing” is jumping onto a token without research—so—maybe don’t do that?
Thoroughly research any memecoin’s origins, community, use-case, and the team behind it. If there’s a loophole, you’ll find it—if you look hard enough.
This is a no-brainer. Memecoins as we have stressed severally, are very volatile. They can be subject to pump-and-dump schemes, so only invest money that you can afford to lose.
Don't put all your eggs in one basket. Diversifying your investments across several market sectors can help you put a pin on the risks.
Decide before jumping in, how much you’re willing to invest and at what point you’ll take profits or cut your losses.
Read about crypto-related topics, and never stop. More importantly, as you read, adjust your strategy accordingly.
Store your investments in secure wallets and be careful of phishing/fraud.
This boom of memecoins on the Solana network has massively boosted its transaction volumes and daily active users. However, this also makes Solana more vulnerable to crashes under all of that weight, as we have seen a few times in the past.
To conclude things, for those looking to invest in the Solana ecosystem, consider projects with solid fundamentals, clear use cases, and strong developer support.
Happy investing, and have a profitable bull run.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.