Recent trends have forced investors to prepare bear-resistant portfolios, but are “memecoins” being unfairly dismissed?
It’s time to face reality.
The future looked bright in April as cryptocurrencies soared to new heights, but the bullish wings of the market flew a little too close to the sun. Brazen market manipulation, an abundance of FUD from China, and threats of regulation have the bulls on the run from something, and if it walks like a bear and talks like a bear, well… you know the rest. But let’s be clear: whether you’re a Bitcoin maximalist or a shitcoin strategist, it’s time to play it safe and plan your bear market strategy. But the landscape has changed. So what does the rise of Dogecoin mean for your diversification, and does a “memecoin” have a place in your portfolio?
Remind me what a bear market is?
In cryptocurrency, a bear market is simply an extended period of time in which the market declines. If you on-ramped onto Dogecoin in March, that probably sounds a little scary. But it’s the sentiment that accompanies bear markets that concerns investors the most. Put simply, in a bull market people look for reasons to invest, while in bear markets they find reasons not to. If that statement doesn’t terrify you, take a moment or two to reflect on the implications.
How do we know if we’re in a bear market?
There aren’t any metrics that allow crypto analysts to decisively say when we’ve moved from one market to another, we often don’t know until we look back in hindsight. It’s an issue that polarizes analysts and experts. From a distance, charts that show the transition of bull into bear may look like a steady decline, but zoom in and you’ll see sharp drops peppered with “bull traps”–periods of recovery that inspire false confidence. Starting to sound familiar?
What should you do when a bear market hits?
There are too many bear market strategies to cover, and I would highly recommend that you research the subject further. Here, we’re going to focus on a subject that’s been the topic of recent murmurs throughout the low-cap community: the use of memecoins as safe harbor when the bears strike.
Can memecoins really fend off bears?
The short answer is that yes, theoretically, some memecoins could present additional means of diversifying your portfolio. I say theoretically because there’s no relevant historical precedent to analyze. Memecoins did exist during the last bear market in 2018, but the rise of Dogecoin and surge in popularity has rendered that data obsolete.
Why would anyone think memecoins could be bear-resistant?
The idea is grounded in the miniscule ground that stablecoins and memecoins share. As a bull market transitions into a bear market, an increasing amount of emphasis is placed on the real world application of a coin–in other words, utility. High utility means a feast (albeit a small one), and low utility means famine, or death.
But what about coins with zero utility? I’ll explain the concept using USDT (Tether) as an example of a stablecoin, and HOKK (Hokkaidu Inu) as an example of a memecoin.
With zero utility, how could a memecoin survive a bear market?
If utility were a spectrum, USDT would stand at the top while HOKK would lie at the very bottom, and everything else would fall somewhere in the middle. And while the two coins are opposite one another, both are at the very edge, leaving only one side exposed for hungry bears. If a high degree of utility allows USDT to beat them off with a stick, a total absence of utility renders HOKK invisible. In other words, the traditional pressures a bear market puts on a coin will have a reduced effect on both.
You won’t find a use case in HOKK’s whitepaper, in fact you won’t find any whitepaper at all. I wouldn’t hold my breath waiting for them to offer a product or service, either. But I’m not alone, no one who holds HOKK has ever expected this of them. Like many memecoins, HOKK’s value is derived from the collective conceptualization of investors. The potential for that value is what brings an investor into the house, but the community-driven aspect is why he crashes on the couch. The LFG mentality of these types of coins doesn’t smell like food to bears (which prefer more tangible tokens, like HNY.)
So you’re saying memecoins are exempt from bear markets?
No. Nothing is exempt from bear markets. To be clear, I am saying that some memecoins could be less affected by bear markets, although a handful may perform well.
But you’re saying I should stock up, right?
If your bags are overflowing with memecoins going in, a bear market might burst some of the bubbles. However, a modest percentage in your portfolio can improve diversification, and a different risk/reward factor.
How do I know which coins will perform well?
That’s an easy one. Do. Your. Own. Research. Nobody should be making portfolio decisions without researching first, especially since memecoins, as they exist today, haven’t seen a bear market yet. In culinary terms: we don’t have the recipe, but we know some of the ingredients and how they affect taste.
To start, stability is perhaps the most important factor to account for–Market Cap being the best single metric to go by. The higher the Market Cap, the more stable the coin, in most situations. This rules out a lot of the smaller and newer memecoins, their price is too volatile. More holders investing more money means a coin is less prone to wide swings and manipulation…
…Unless, of course, you’re talking about Dogecoin.
If the influence Elon has on DOGE makes you worry, you aren’t alone. While it would be hypocritical to support true decentralization and decry Elon in the same sentence, it’s worth noting that if he (or his ego) pulls a Bitcoin on Dogecoin, DOGE won’t be the only one that suffers. Any token with “ELON” or “DOGE” in its name is going to have a bad time–DOGELON and ELONDOGE especially.
Don’t forget CUMMIES! What else should I know?
Just as important as stability is a credible team, and one that acts transparently is even better.. If you’ve spent time tracking whale wallets, or the “totally legit based dev” that just pulled the rug from under your latest venture, you know that people who create scamcoins travel in groups.
Often the teams behind rugpulls, pump and dumps, and honeypots, consist of people practiced at churning out new coins quickly, and with little or no preparation. Allegations of ties to those teams might make you cautious of KISHU-affiliated coins, but remember, DYOR.
Also, established coins are often viewed as mutually exclusive to those with growth potential, but they can co-exist, and the ones that do are highly sought after. With no utility to offer, a memecoin needs proper marketing, listings, and partnership announcements to avoid being seen as a sitting duck. While the oppressive nature of the bear market drags a stagnant coin down, it also makes it nearly impossible to get back up. SAFEMOON and HOGE are both well established and could perform well in bearish weather, but do they have the growth potential of a HOKK or a CAVA?
Is there more to consider before I decide what’s right for my portfolio?
The aspects we just reviewed are some of the most important, but there are plenty more questions to ask. Do your own research, think for yourself, and don’t be swayed by the opinions of others. When making financial decisions, critical thinking is paramount, and the noise can be hard to drown out. Remember, when money involves motives and advice tends to go hand-in-hand; you’ll need to judge for yourself the purity of someone’s message.
The message here is simply to keep an open mind in regard to memecoins, nobody’s quite sure of their potential yet. I’ve heard from investors of HOKK, JEJUDOGE, and SHIB that there’s an ineffable value placed on community, and I can say from experience that feeling was nowhere to be found during the crypto winter of 2018.
If your knee jerk reaction to this opinion is FUD, that’s okay. Just make sure the reaction is grounded in knowledge and research, not stuffy personalities on Twitter. I don’t consider myself a memecoin apologist, but I fail to see logic in the predictions of failure. So far all I’ve seen are failed predictions, so I remain cautiously optimistic about what they’ll offer.
After all, being bearish for the sake of the bear is why we ended up in a bear market to begin with–running with the bulls is the only way out.
Written by Diane Estes
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