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| By Bruce Ng |
Since its launch three weeks ago, Pepe (PEPE, Not Yet Rated) has shot up more than 1,000x!
Even in the world of crypto, that’s an unbelievable rise in such a short time. PEPE is now a top 50 crypto with a $1.1 billion market cap.
So, how do we account for PEPE’s meteoric rise? In short, it’s the darling of this latest memecoin season.
Memecoins are joke coins created without any fundamental value.
Typically, a cryptocurrency’s value is based off metrics like revenue, profit and usage, which analysts use to determine how much a project is currently worth and how much growth potential it has.
Instead, memecoins rely on the popularity of the meme they’re based on and their ability to catch attention on social media to entice new investors.
So, they go up because people buy them. They go down because people sell them. And people continue to buy them in hopes that it will continue to go up.
But that is not inherently a bad thing. Many memecoins do very well in bullish cycles.
For example, Dogecoin (DOGE, “C+”) and Shiba Inu (SHIB, Not Yet Rated) also made gains upward of 1,000% in the last memecoin season.
These coins will rise until the supply of new money is depleted. When that happens, memecoins will inevitably go down as people sell them off, desperate to lock in some gains.
And that’s where the significant risk comes in. Just as memecoins have the potential to earn you massive gains, there’s also massive downside potential if you get caught in the sell-off.
Last week, my colleague Jurica Dujmovic interviewed several community experts to break down the exact risks of investing in memecoins. I suggest you read up on those. They will be important to keep in mind today as I highlight how investors can make the most out of memecoin season.
That’s because the potential for any reward must be balanced against the potential for downside risk. Only you can determine how much risk you can tolerate.
That’s why the entire Weiss crypto team is dedicated to demystifying this hot sector — so you can get the full picture and make the right moves in your own portfolio.
How to Play Memecoins
Let’s say you decide you can tolerate the risk potential and have funds set aside to trade memecoins.
Before you hop in, there are four key steps to making the most out of any opportunity:
- Be selective. Hundreds of memecoins get launched all the time. Most of them are scams or fail to draw in buying power for various reasons. We estimate that out of 20 memecoins, 19 are scams or doomed to languish in obscurity.
So, picking the right coin requires an immense level of dedication to tracking the trends and a significant amount of luck. - Be early. The earlier you get in, the more money you can make. To get in on the ground floor of a successful memecoin, you’ll have to comb Twitter threads, be in the right Telegram or Discord channels or somehow luck out on hearing about a particular coin from an insider.
It’s quite a game of chance. - Be dedicated. Suppose you’ve made 10x or even 100x gains on a memecoin. When do you sell? Obviously, that’s a question only you can answer. But I will say that it takes dedication to hold after gains that impressive. And again, there is a huge element of luck in play here.
One way to play this is to sell a sizeable portion after a large runup to recoup your initial investment and then leave a moonbag (i.e., money you can afford to lose) to realize the 1,000x gains. - Be realistic with your allocation. Don’t just dump a sizeable chunk of your portfolio into one memecoin. Instead, allocate a small portion of your portfolio and split that up into small amounts. Then, invest each clip into 10 memecoins.
Memecoins can go to zero incredibly fast, so only invest money you can afford to lose.
In addition to the above, it’s important to keep in mind when memecoin season usually hits within the crypto cycles.
Memecoin season usually marks the end of any positive rally in crypto. And we’ve been seeing a positive rally since the start of the year.
The current market is in player vs. player mode. With most participants in the crypto market trading against each other, there is little to no new money entering crypto from the outside.
These factors combined mean we may be looking at the end of this rally soon — a sentiment shared by Juan Villaverde and Alex Benfield, as they recently discussed what they believe the second half of 2023 will look like.
It seems like the time to act on memecoins has passed … at least for this season.
But another memecoin season is likely to rise during the next bull cycle. And with it will come new opportunities.
As I hope I’ve made clear, making huge profits on memecoins requires a lot of pure luck. And the amazing stories you read online about average investors turning a small investment into seven-figure profits have a survivor bias.
This is all the more reason to be cautious when looking for opportunities in this corner of the crypto market.
Best,
Bruce
