September Saw a Surge in Meme Coin Value. Here Are 3 Tips for Investing in Meme Coins

Many may have thought meme coins were just a passing fad from the bull market of 2021, a quirky corner of the crypto world destined to fade. But today, it's clear that meme coins have carved out a legitimate niche in the broader cryptocurrency market.

These coins, often inspired by internet jokes, pop culture references, or online communities, have captured the attention of retail investors once again. In September 2024, meme coins like Moo Deng and Pesto took the spotlight, sparking a surge in trading volume and reigniting interest in the speculative world of meme tokens.

If you're thinking about jumping into this speculative sector, there are some crucial things to understand first. Here are three essential tips for putting money into meme coins.

Image source: Getty Images.

1. Meme coins are extremely speculative

While many argue that most cryptocurrencies lack intrinsic value, meme coins take this to an entirely new level. Even the strongest crypto advocates would likely agree that meme coins have almost zero inherent value. These tokens are not backed by technological innovations like smart contracts or decentralized applications. Instead, they trade purely on market speculation, driven by social media hype, celebrity endorsements, or viral trends.

Meme coins often rise to prominence based on little more than a viral tweet or an online community rallying around a token. As a result, they are extremely speculative, with prices determined by fleeting market sentiment rather than any underlying use case or development roadmap. This makes meme coins highly unpredictable.

The fact that meme coins have no real-world utility or intrinsic value means that they are unlikely to hold long-term staying power. Even during market rallies, the lifespan of most meme coins is short, often limited to just one or two bull cycles before fading into obscurity. Investors should understand that while meme coins can offer the potential for quick profits, they're also among the riskiest and least sustainable investments in the cryptocurrency space.

2. Be prepared to lose all your money

Buying meme coins is akin to gambling. It's critical that anyone considering purchasing meme coins understands that you should never spend more than you're willing to lose. The chances of a meme coin skyrocketing in value are slim, and even if it does, the price can fall just as fast as it rises.

This rapid price volatility can be exacerbated by the low liquidity that many meme coins have. Because these coins often lack substantial trading volume, selling your position, especially during a downturn, can be extremely difficult. You might find yourself unable to offload your holdings without significantly affecting the price, which can lead to major losses.

Additionally, meme coins are prone to "pump and dump" schemes, where early buyers pump up the price only to sell at the top, leaving latecomers to hold the bag as the price crashes. So, while meme coins can be exhilarating to watch during their meteoric rise, you must be realistic about the possibility of losing all your money when the music stops. Treating meme coins as speculative plays, much like placing a bet at a casino, will help keep your expectations in check.

3. Most meme coin traders don't make money

One of the most dangerous aspects of buying meme coins is the allure of success stories. Every bull market is filled with tales of lucky people who turned a small meme coin purchase into life-changing sums of money. Stories of people making millions from early buys of Dogecoin, Shiba Inu, or Pepe have become crypto legends, but what we don't often hear are the far more common stories of traders losing everything.

The reality is that most meme coin traders don't make money. While we hear about those who sell at the perfect time, the vast majority end up holding on to their tokens too long, watching their paper gains evaporate as prices come crashing back down.

That's why one of the most important lessons in meme coin trading is knowing when to take profits. If you're fortunate enough to be early on a meme coin and see substantial gains, don't be afraid to realize some profits. Greed can be a trader's worst enemy. Waiting for that last 10% increase or trying to sell at the absolute peak can backfire, leaving you holding worthless tokens as the price tanks.

Final considerations to keep in mind

Meme coins have emerged as a unique and highly volatile sector of the cryptocurrency market. While they can offer incredible upside potential during bull markets, they are also among the riskiest assets you can own. If you're thinking about jumping into meme coin trading, remember that these tokens have no intrinsic value, you should be prepared to lose all your money, and most traders don't end up making a profit.

However, if you can stay disciplined and take profits when you have them, meme coins can provide an exciting, albeit speculative, addition to your crypto portfolio. Just remember: Buy responsibly, and never bet more than you're willing to lose.

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RJ Fulton has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.