The Cryptocurrency “It” Factor: What Makes a Coin Like Shiba Inu Explode
There is a new meme dog coin in town.
The Shiba Inu coin, a meme cryptocurrency with the face of the Japanese dog breed, has climbed more than 100% last week. Why? As with many investments in memes, it’s hard to say.
This spring, the co-creator of the crypto platform Ethereum donated more than $ 1 billion in Shiba Inu coins to a relief fund aimed at stopping the spread of COVID-19 in India. The crypto has since gained an online audience which has been accompanied by a surge in the coin’s price.
It is reminiscent of the rise of Dogecoin – another crypto meme with the face of a Shiba Inu dog – which was created as a joke but jumped over 400% in a week in April. The price of Dogecoin, which started the year at less than $ 0.01 per coin, is now around $ 0.29. The creators of the Shiba Inu coin call their coin the “dogecoin-killer”.
As these price spikes suggest, if you can successfully predict the next crypto to explode, you could be rich. But choosing it is much more difficult than it looks.
“If Dogecoin can explode in popularity, any of them could explode in popularity,” said Hanna Halaburda, associate professor at the NYU Stern School of Business. “A funny cat might be the next thing.”
So what makes a crypto worthy to soar like Shiba Inu did last week?
Lots of hype for meme parts
Even coins like the Shiba Inu and Dogecoin coin actually don’t have any underlying fundamental elements that could have hinted at their impressive performance. In other words, they are not like a company whose corner of its business market has driven up its stock price.
“They’re not doing anything,” said Halaburda. “They are just cute.”
Other cryptos actually have a purpose, she adds. Ethereum, for example, is a platform for verifying and storing financial transactions without third parties like a bank. (The coin associated with Ethereum is actually called Ether.)
But the rise of coins even shows just how much everyday investors are rallying on Reddit or Twitter. If a crypto collects enough enthusiasm and more and more investors accumulate in it, the value of that crypto will continue to rise.
“You will always get those ripples of enthusiasm that are both potent potential investments and danger traps,” says Eric Schiffer, CEO of private equity firm, The Patriarch Organization.
So, in order to explode, meme cryptos have to have a lot of fans and people who are basically willing to play.
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A real goal for some parts
But not all cryptos that take off are same coins. Bitcoin, the original and best-known crypto, recently hit an all-time high of over $ 66,000 per coin. Ethereum has also taken off in recent years and is now the second largest crypto behind Bitcoin in terms of market capitalization.
“You should really be looking at projects that have a utility and that actually do something,” says Shidan Gouran, founder of Gulf Pearl, a blockchain investment bank and consultancy. Blockchain is an underlying cryptocurrency technology that stores information – like Bitcoin transaction history – in a way that ensures that no individual or group has control over that information.
If you invest in a pretty coin just because it has a lot of hype, it’s basically a total bet. But there may be underlying use cases that support other cryptos in the long run.
One of them is Cardano, says Halaburda. Cardano is a blockchain that implements a system for verifying new transactions that is more environmentally friendly than the system used by Bitcoin. Some may also find it to be an easier to use blockchain than Ethereum, she adds.
Solana is another example of a cryptocurrency with forward-thinking use and base, Schiffer says.
A playbook for how to invest in cryptocurrency
If you’re looking for the secret sauce of blockbuster cryptos, you might be out of luck.
But you can do your research to understand how cryptocurrency works and try to determine which ones actually support future blockchain technology – like Ethereum – versus those created just to make people laugh – like Dogecoin.
Financial advisers recommend that if you want to get into crypto investing, you only do so with a small portion of your portfolio, no more than 5%. You really shouldn’t invest more than what you are prepared to lose.
“You could easily see your whole investment go up in flames,” says Schiffer.
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