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High Risk, Low Reward: Data Analyst Weighs in on Memecoin Investing
- Memecoins have shifted from a high-risk, high-reward investment to high-risk, low-reward due to market saturation.
- The ease of creating tokens on platforms like Solana has increased competition and lowered potential returns.
- With more tokens and higher competition, the old days of rare, lucrative memecoin opportunities may be gone.
Thinking about aping into the latest memecoin, be it catwifhat or Baby Bonk, or any of the memes that have a combined market cap of US$51bn (AU$77.6bn) and a daily trading volume of US$4.1bn (AU$6.2bn)?
Well you might want to think again. Because, all things considered, you can really sink some serious money in this crypto sub-genre.
Related: Standard Chartered Says Donald Trump Presidential Win Could Boost Bitcoin
In a recent post, data analyst Crypto Koro points out that unlike in the past when memecoins were high risk high reward plays, they now have become high risk low reward – something to think about before you place that order on a couple of Sheboshis.
Enormous inflow of retail/liquidity + few memecoin options = parabolic moves.
Crypto Koryo When memcoins were mainly released as ERC-20 tokens it was technically not feasible for everyone to create a token. Now, with many tokens launching on Solana and Base (cheap, fast and comparatively easy), the barrier for deployment has been lowered – it has also increased competition significantly.
Degens Moving to Solana and Base, Leaving Ethereum Behind Due to High Gas Fees
Crypto Koryo said that due to elevated gas fees on Ethereum, some “degen” activities, including trading memecoins, have shifted to other blockchains such as Solana and Base.
Solana, in particular, has become a popular platform for memecoins, as evidenced by the evolving distribution of these tokens across different chains over time, the analyst said.
Analyst: Memecoin Investing Has Become a High-Risk, Low-Reward Venture for Most
Memecoins are now no longer a straightforward investment due to the saturation of the market with thousands of new tokens on multiple chains, making it challenging to identify potential winners like before, Crypto Koryo continued.
The number of possibilities is growing rapidly and for the vast majority of people, it’s just not possible to consistently have a high win rate in this game.
Crypto Koryo With the proliferation of memecoins, most are likely to fail, Koryo added, necessitating extensive diversification for investors who want to participate – which dilutes potential returns and increases the effort and risk involved.
Related: Ethereum Network Rebounds, Sees Massive Growth as ETH Holds Above $3K
Additionally, the current market dynamics have shifted from a supply shortage to an overwhelming supply exceeding demand, further diminishing the likelihood of high returns as seen in previous cycles.
This makes investing in memecoins a high-risk, low-reward venture for most, unlike the high-risk, high-reward scenario of 2021, Crypto Koryo concluded.
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Author
Aaron Feuerstein
Aaron Feuerstein is a freelance writer based in Melbourne. His focus is on decentralised finance and the regulatory space surrounding blockchain. He holds a Master's in Accounting. When he is not studying the latest legal case, he enjoys his time as a modest but eager hobby cook.
