Meme tokens have been creating vertical hills on graphic charts for the last 2 years now. The cryptocurrency market is not without financial risk factors involved, and so are meme tokens. Investment in meme tokens carries a lot of risk with them, some are obvious and some are potential.
Here in this article, we are going to talk about some of the potential risks of the meme tokes which they carry with them. The tokenomy is a term that deals with the ups and downs in the market value of these fund cryptos. The term token my is derived from the combination of the two words; token and economy, hence meaning the economy of the economics of the tokens.
What is a Token
This brings us to the terms tokes which need to be understood before going further into the potential risks that it carries with it. The main difference between mainstream cryptocurrencies and tokens is that they earlier have their own blockchains whereas the latter runs on other cryptocurrencies’ blockchains, for example, the Ethereum blockchain runs many tokens on its framework with Shiba Inu being one of them.
This is a simple explanation of the main difference between mainstream cryptocurrencies and crypto tokens.
What is a Meme Token
With the explanation of the crypto tokens and their basic understanding, we now talk a little about the meme tokens. The meme is a well-known internet phenomenon which is normally a photo, a text or a video. The cryptocurrency that is based on any internet meme and does not have its own blockchain is called a meme token. It started as a joke with a dog of the breed “Shiba Inu” as a symbol and was named dogecoin. A little endorsement from the guru of cryptocurrency and the CEO of Tesla Motors Elon Musk made it rise in the market overnight and hence giving the foundation to a new cryptocurrency phenomenon known as meme token or meme coin.
Potential Risks Of Investment
Now let’s talk about the potential risks associated with cryptocurrencies, especially with meme tokens.
To begin with, let’s talk about the biggest cryptocurrency, Bitcoin. It has its own blockchain and a well-established ecosystem. It has risen to its highest market value a few months back and now it has dropped to a very low price. The situation of the market of the meme cryptos is no different but what makes them riskier to invest in is that they do not have their own blockchains as well.
A very small number of meme coins have been created from the infrastructure of the main crypto. For example, dogecoins used the infrastructure of technology of Litecoin (LTC) whereas Shiba Inu used the technology of Ethereum on its blockchain.
Community Driven Following
After having talked a little about the risk of not having their own blockchains let’s talk about another potential risk, that is the basis of community drive. Most of the meme tokens are community-driven and as compared to the main cryptocurrencies they are under more speculations. This situation caused repeated cycles of inflation and then are subject to more selling making the life cycle of meme-based tokens very short.
These community-driven meme currencies can rise to hundreds and thousand of times just by some celebrity hype or can make a deep nose dive if the community behind it has an interest in some other meme coin. This is a very volatile situation that makes this meme-based cryptocurrency very risky to invest in.
A Big Example
The biggest example is this argument is the fact that a Netflix series, Squid Game, gave rise to a new meme token named SQUID that rose up to 86 thousand percent in a short span of time of just 7 days. What happened then is history, the development team suddenly pulled out all the money and took all the funds so the price fell or should I say crashed to the deepest low of 99 percent. Another bad thing associated with it was that the holders of this meme token could not sell their token because they were not allowed to.
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The Squid token is a big example of potential risks involved with the meme tokens, there is no security to its investment. So be careful when making an investment in meme tokens or any other cryptocurrency out there. Check and research the market before the investment.