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October 6, 2021

3 Reasons Why You Should Avoid Meme Investments

Meme investments may have started as a joke, but many investors are starting to take them seriously. Case in point: Dogecoin — a meme investment created to poke fun at the popularity of cryptocurrency. Despite being a spoof, US News points out that the cryptocurrency’s value has risen to more than 5000% since the start of the year, peaking at whopping 45 cents. If you’re one of those investors who want to invest in meme assets—either or fun or because you think it’s a lucrative option—it’s best that you know what you’re getting into first. So before you shell out your hard-earned money, here are three factors that you need to keep in mind.

They aren’t ideal for generating wealth

It’s important to note that meme investments will certainly not make you a millionaire overnight, or are they particularly good long-term investments. The posts on investing published by AskMoney explain the fundamental principles behind these specific investments. Going back to Dogecoin, one of the articles emphasizes that the meme crypto cannot sustain its high value because there’s potentially an unlimited supply of it. With millions of Dogecoins released each day, its demand, as well as its value, decreases. This is in contrast to Bitcoin, which can only exist in a finite amount. The lack of scarcity is actually detrimental to Dogecoin. In fact, its price hasn’t risen past 50 cents since its release in 2013. So if your goal is to invest for your house or retirement, you might want to look elsewhere.

Their high volatility makes them harder to sell

To get good gains from your investments, you need to study and decide when to sell them. Assessing your investment’s valuation, growth prospects, and surrounding market conditions are crucial in determining when you need to hold your investment and when to reap your gains. Unfortunately, the extreme volatility of meme investments makes it difficult to determine the best time for selling. For instance, meme stocks from the AMC movie theater chain experienced a surge last January due to calls for support in a Reddit board. Though this may seem like positive news, it’s important to note that these stocks can rise just as rapidly as they can plummet. And the extreme volatility makes it difficult to predict when best to sell or hold on to your investments.

They are driven by social media, not by company performance

Social media posts are responsible for the surge of value in meme investments. Through these posts, investors are coordinating and pushing to increase the value of these assets. As an example, social media users united in driving a frenzy for the stocks of video game retailer GameStop earlier this year. While this did cause the meme stock’s value to rise, it has been discovered that thousands of bot accounts played a role in hyping the stock. As an investor, this puts you at a disadvantage because the prices of stocks are typically driven by business performance, not social media hype. The social media posts and the bots may pump up the value of the stocks temporarily. But at the end of the day, the company’s overall performance will determine how long it can hold the market value. So if you’re investing in a company’s stock due to social media, you’re putting yourself at risk by handing your money to a company that may not be able to sustain and grow it.

Meme investments may seem alluring on social media, but they aren’t great long-term investments. Since these assets aren’t properly sustained and regulated, it’s extremely difficult to get good gains from your investment. Instead, look into other investments, like legitimate cryptocurrencies that are higher in value. Though not as humorous as Dogecoin, options like Ethereum are much better as long-term investments. Although, should you decide to invest in these assets, know that there are risks involved. These risks are unlike those of traditional investments. Thus, you should exercise caution when adding them to your portfolio.

For more cryptocurrency news and investment advice, stay tuned to Coinposters. We post regularly about market movements, different types of crypto, and more.

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