PRESS RELEASE | Anyone who has spent a significant amount of time on the internet is familiar with memes. Their influence on internet culture has been so profound that they have crossed over from social media into the world of cryptocurrencies.
Some of the most popular meme coins include Dogecoin (DOGE), Shiba Inu (SHIB), and Pepe (PEPE). These tokens often experience explosive growth due to their playful nature and strong community backing.
This is a press release submitted to BitPinas
However, in recent months, meme coin investors have fallen victim to numerous scams, including pump-and-dump schemes and rug pulls.
So, what are the biggest risks associated with meme cryptocurrencies, and how can investors protect themselves?
Meme Coins: The Biggest Risks to Watch out for
One of the biggest risks of meme cryptocurrencies is their unstable prices. Their value goes up and down based on market trends and online hype, making them unpredictable and risky for investors.
For example, in 2021, Elon Musk tweeted about Dogecoin, causing its price to jump by over 50%. But later, when he called Dogecoin a scam on Saturday Night Live, the price dropped by 30% in less than an hour. This shows how quickly meme coins can rise and fall.
Howl Labs CEO Ivan Perez says meme coins are often like a gamble. Their value depends mostly on how big and active their community is, rather than any real use.
Because meme coins are highly speculative, scammers often target them for fraud and pump-and-dump schemes. The lack of clear rules in the crypto world makes them even riskier.
Before investing in meme coins, remember that you could lose all your money. It’s important to do proper research and not invest more than you can afford to lose.
What are Meme Coin Scams?
Some meme coin scams mislead investors about what they really are. They may claim to have a large community of buyers or a strong team of developers working on a big project when, in reality, neither exists.
A common scam is the “honey pot,” which combines elements of traditional fraud and pump-and-dump schemes. Here’s how it works: A scammer creates a new token and quickly buys a large amount to drive up its price.
This sudden spike gets the token featured on trending lists in analytics tools like Dextools, attracting more traders who want to profit. The catch? The scammer programs the token’s smart contract so only their wallets can sell. Investors keep buying, thinking the price is rising naturally, but they can’t sell their holdings.
Eventually, trading platforms recognize the scam and warn users. By then, the scammer sells their tokens at the inflated price, making huge profits while others are left with worthless assets.
Another trick scammers use is copying popular meme coins. They create fake versions of well-known tokens, making investors believe they are buying the original when, in fact, it’s just a worthless knockoff.
A Different Approach to Meme Coins
Instead of relying purely on hype, some meme coin projects aim to establish a more legitimate and sustainable presence in the space. One such example is Mind of Pepe, which positions itself as more than just a meme coin.
The project emphasizes community engagement and a clear long-term vision. While it is still crucial for investors to conduct their own research, projects like Mind of Pepe highlight that not all meme coins are created with the same intent.
Pump and Dump Schemes are Common Among Memecoins
Perhaps one of the most common scams in the meme coin ecosystem are pump-and-dump schemes . They involve a coordinated effort by a group of investors to artificially inflate the price of a cryptocurrency, thereby pumping it up by spreading positive propaganda online and encouraging others to invest in it.
Once the token hits a certain maximum price, the orchestrators sell their holdings, thus getting rid of everything they had on it, causing the price to plummet and everyone else to lose money.
Howl Labs’ Perez explained that in most cases, meme coin projects that experience a pump-and-dump scheme die due to the fact that the orchestrators control all of their liquidity.
“If most of the liquidity is in a couple of hands, as soon as they leave, the price falls and the liquidity becomes so diluted that even trying to sell becomes very difficult because of the slippage.”
YouHodler Head of Markets Ruslan Lienkha added that within the crypto world, pump-and-dump schemes are much more common as it is “easier to manipulate investor sentiment.”
“Many crypto traders simply do not have any experience in traditional financial markets in their background. Therefore, coins with very low capitalization, lack of regulation, and easier ways to target potential investors via social media (with misleading information campaigns, etc.) make the scheme much more efficient and easier to implement.”
He added that speculations have recently surfaced that the prominent PEPE token was part of a pump-and-dump scheme when rumours spread that an American money management firm, BlackRock, was involved in the trade.
Although BlackRock denied involvement in the scheme, some investors speculated that it was a pump-and-dump attempt.
How can Meme Coin Investors Protect Themselves?
Kemerrer and Perez were unanimous in saying that investors looking to put their assets into meme coin projects should conduct thorough research before putting cash into projects they may be unsure of.
“Any aggressive promotional campaign with limited information about the meme coin, inconsistent information, or unrealistic claims are red flags. Furthermore,[investors should avoid investing in meme coins with a sudden price increase or an abrupt spike in trading volume,” Kemerrer stressed.
Perez added that inspiring investors should examine a project’s community and analyze whether it is just discussing the price of a token or whether there is real support for the project or its aspirations.
Furthermore, Lienkha noted that an easy win is to invest in projects that prove to be more liquid and never get too influenced by trading news or enter the market at a time of high volatility, as FOMO could be an investor’s worst enemy.
“Also, when it comes to news, all information should be double-checked; for long-term strategy, it is important to distinguish facts from opinions.”
Even with all of these precautions, it is important to realize that there will always be many risks incurred when investing in nascent meme coins based on nothing more than hype and community interest.
Staying Safe in the Meme Coin Craze
Overall, investing in meme coins can be a fun and sometimes incredibly profitable activity. However, as with any other cryptocurrency, it is important for investors to conduct due diligence when putting their money into a project they may not be too familiar with.
Researching and getting familiar with the community that supports a particular project would be the first steps to reduce the risk of being scammed when investing in meme coins. Also, investors should never invest money that they cannot afford to lose.
It is important to focus on the use case, if any, of these meme coins, since that is where their growth projection and therefore their value in the market mainly comes from.
This is a press release submitted to BitPinas: The Dark Side of Memecoins: How to Spot and Avoid Scams
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