Meme coins have become increasingly popular, with the meteoric rise of $PEPE attracting traders looking for a quick profit. However, investors should be aware of the risks involved in memecoins, including supply distribution issues and the potential for price manipulation.
Supply Distribution Issues
One major issue with memecoins like $PEPE and SHIBe DOGE is the concentration of supply in the hands of a few individuals. This can lead to a lack of liquidity and sudden price drops if these top holders decide to sell their coins. For example, trading pools for $PEPE on Uniswap currently hold less than $4 million in available liquidity, but some investors have turned just $1,200 into over $9 million in token value in just a few days.
Furthermore, nearly 3% of $PEPE holdings are connected to each other from Etherscan transactions, posing a significant risk to the market and holders as those wallets hold a token value superior to all the on-chain available liquidity. Commercial holders such as MEXC Global and Huobi hold over 5.5% of the $PEPE supply.
Another issue with memecoins is the potential for price manipulation. Due to the lack of regulation in the cryptocurrency market, it is easy for whales and other large holders to manipulate the price of memecoins. This can be done through social media hype or by purchasing large amounts of the coin to drive up the price before selling for a profit.
Memecoins are notorious for their volatility, which can make them appealing to traders looking for quick profits but also make them risky investments. The price of memecoins can fluctuate wildly based on social media hype, market sentiment, and other factors, making it difficult to predict their future value.
Lack of Fundamentals
Unlike traditional investments, memecoins do not have any underlying fundamentals to support their value. Their value is based solely on market demand, making them highly speculative investments. This lack of fundamentals also makes it difficult to predict the long-term value of memecoins, as they are highly susceptible to hype and fads.
Lack of Regulation
Finally, the lack of regulation in the cryptocurrency market means that memecoins are highly susceptible to fraud and scams. Many memecoins are created as pump-and-dump schemes, with the creators selling their coins at a high price before the market collapses. It is essential for investors to do their due diligence and research before investing in any memecoin.
While memecoins like $PEPE and SHIBe DOGE present a great opportunity for small investors to make quick profits, they also come with inherent risks that traders should be aware of. The concentration of supply, potential for price manipulation, volatility, lack of fundamentals, and lack of regulation make memecoins highly speculative investments that require a conscious approach and strong nerves to withstand the inevitable market fluctuations.