Meme coins
Meme coins explicitly have no use and earn nothing. Their price depends solely on attention. That makes them a bet against other buyers, not an investment.
That a meme coin has no purpose isn't an oversight. It's part of the concept. Dogecoin was launched as a joke in 2013, and many projects say openly that they can't do anything. The sentence “They have no use” is therefore no criticism. It simply describes what they are.
That also makes clear where a gain can come from: only from someone who pays you more later. There's no income, no fees anyone pays and nothing that gets created. It's purely redistribution among the players, minus trading costs.
That doesn't automatically make it wrong. If you deliberately put in an amount whose loss wouldn't hurt you, it's a bit like a lottery ticket. It becomes a problem when it's sold as an investment.
The surrounding conditions are what's dangerous. Often a large share of the coins sits with a few owners, little is traded, and exactly such assets are used again and again for pump and dump schemes. Anyone joining in should do so with their eyes open.
Without income and without real use, there's nothing a price could orient itself to. The price only depends on what others might want to pay in future. There's no fair price the market returns to. Taken together, all players earn nothing before costs and lose after costs.
The distribution tilts things further. If many coins sit with a few addresses, their owners can push the price down hard with one sale. And because little is traded (market depth), the price swings violently in both directions. Both favor manipulation of the kind described in the fraud protection section.
For your portfolio such a position adds no diversification. Its expected return is negative, and in crises it usually falls together with other risky investments, its correlation is high then. Such a purchase can only be justified as spending on entertainment, and that's exactly how you should budget for it.
Summary
- No income, no utility, no valuation anchor.
- Zero before costs, negative after costs, for all participants combined.
- Budget it as spending on entertainment, not as an investment.
Did you get it?
Where can a gain on a meme coin come from?
Only from someone who pays more later. There's no income and nothing that gets created.
What follows from heavily concentrated holdings?
A few owners can move the price a lot, and that favors manipulation.
How should such a position be classified?
As spending on entertainment whose total loss you can bear, not as an investment.
Related
- All asset classes comparedStage 1
- Insurance before wealthStage 0
- What return actually meansStage 1