Synopsis: This article discusses the cons of investing in meme coins. It also dives into why Indians might not like to invest in meme coins based on the prevailing investment trends and preferences of Indians.
Meme coins are those cryptocurrencies that originated from jokes and social media platforms. It was created purely for entertainment purposes, but it obtained its value from social media hype and speculations. Investment in meme coins has yielded immense profits, while some incurred losses. High and unexplained price fluctuations are the main features of meme coins.
Why should you not invest in meme coins?
High price variation
The price can change only because of social media engagement, celebrity endorsements, and speculation. This makes any meme coin investor more vulnerable to price variation. Prices can rise and fall, this variation cannot be rechecked or understood through economic analysis as it purely depends on social media and endorsements.
Community and Influencer-driven
Their value is derived from social media activity along with influencer marketing strategies. A post from famous influencers, celebrities and thought leaders can have a huge impact on the market as it does not rely on the accuracy, but on the social media engagement. Instead of profits and cash flows, meme coins need belief, consistency, attention and other emotions for their price to keep increasing.
No market value and speculative in nature
The market value is highly dependent on market sentiments. It can vary only because of social media, endorsements and speculation. In financial markets, all shares and debentures have intrinsic value (true value of an asset other than market value). It does not generate financial benefits and has no legal claim on meme coins. If a community loses interest in meme coins and stops engaging with it on social media, there are chances that its value might end up as zero.
Vulnerable to manipulation
In order to create fake demand for meme coins, a group of people can intentionally create social engagement with the intention to defraud other investors. One of the examples is pump and dump schemes. These scams and frauds can continue to occur due to the lack of audits, transparency and accountability.
Pump and dump schemes
Pump and dump schemes involve illegal activities undertaken to inflate the prices artificially. Some examples of these schemes are rug pull, honeypot, soft rug, influencer pump, clone or fake coins, liquidity traps, fake audits and websites, phony hype, taking away liquidity, fake tokens.
Rug Pull
It is a scam, where people disappear with all money and leaving the investors with penniless tokens and digital assets. The top warning signs that you can watch out for are: no audits, liquidity that is not locked, irregular allocation of tokens, and anonymous groups.
Honeypot
It attracts investors with fake liquidity, price variation and hype, but these contracts are set up in such a way that it prevents investors from selling their tokens. You can prevent yourself from becoming a victim by being aware of these scams and taking necessary precautions like testing small amounts and then checking the code before investing.
Influencer pump
It is a scam which inflates the price of cryptocurrency through speculation and community hype. The reason why investors end up becoming prey to this is due to FOMO (fear of missing out). In order to prevent yourself from becoming a prey to it, build your own judgement and check the content thoroughly before investing in it.
Cloned coins
These are fake coins that imitate other well-known coins to gain user trust. You can take steps like checking contact address, reviewing token’s liquidity and locks, inspecting whitepaper and website, and evaluate if the promises were unrealistic to prevent yourself from cloned meme coins.
Also Read: Hot Wallet vs Cold Wallet: Which Crypto Wallet Is Safer for Your Money?
Are Indians at a particular disadvantage when it comes to investing in meme coins?
Yes, Indians are at a disadvantage when it comes to investing in meme coins. The rationale is discussed below:
How Indians Prefer to Invest Their Money
Indians are among the most conservative investors. Most people will invest a generous amount in fixed deposits, gold and land as they can expect fixed and safe returns, whereas investing in meme coins doesn’t guarantee fixed and safe returns.
No monetary value
Most people get attracted to land and gold due to its monetary value, whereas meme coins do not have any monetary or intrinsic value. In short, meme coin is more of a hype than a substance. This reality forces Indians to not invest in memecoins.
No liquidity
While some meme coins enjoy trading volume, others can be difficult to sell. Since these meme coins suffer from low liquidity, it is not on the priority list among Indians to invest in the meme coins which are difficult to be sold.
Lack of regulation
Meme coins remain largely unregulated, making scams more prevalent. Due to this lack of regulation, many risk-averse Indian investors choose to avoid meme coins entirely.
“Whether you want to invest in meme coins is entirely your choice”. However, careful research and awareness of common meme coin scams are required to avoid costly mistakes.
Written by Parvati Anilkumar
