Understanding Investment Strategies in Dogecoin and Shiba Inu: Three Crucial Concepts for 2023
Diving into the world of meme coins like Dogecoin (DOGE 1.21%) and Shiba Inu (SHIB 1.86%), it's crucial to understand three significant concepts that can enhance your chances of investing successfully.
1. Attention drives short-term buzz, but it's fickle
Memes, at their core, are themes or narratives that capture people's attention, like ripples in a pond. In the case of Dogecoin and Shiba Inu, the meme is a dog image that, when attached to a cryptocurrency, is believed to yield astronomical returns. But like jokes, memes' popularity doesn't last forever. Newer, funnier ones emerge, or interest wanes as coin prices falter.
Consequently, the fleeting nature of attention should not be the sole focus for long-term investors. While occasional social media buzz might cause a temporary price increase, it's not reliable as an investment signal.
2. Conviction powers long-term growth
When a meme coin garnering interest persists, it suggests a dedicated community committed to maintaining buzz and occasionally attracting new investors. This free marketing brings more attention to the coin, even during price fluctuations.
More importantly, the presence of investors who hold firm beliefs in the coin's future prospects signals long-term conviction. These folks aren't swayed by short-term losses and are eager for the coin to soar when new money floods in, seeking exceptional returns.
However, holding volatile cryptocurrencies for extended periods requires strong belief in the opportunity cost eventually paying off. In other words, acting with conviction mitigates the inherent risks associated with meme coins and positions them as not-so-risky compared to their lesser-known counterparts.
Monitor any shifts in conviction among the investor base as it might indicate the coin's future trajectory in terms of either appreciating or depreciating in value.
3. There's a rhythm to meme coin price action
Meme coins like Dogecoin and Shiba Inu exhibit cyclical price patterns, perhaps influenced by the four-year Bitcoin cycle. Although it's crucial to acknowledge that predicting the future is an uphill battle, this cyclicality can provide a somewhat reassuring sense of how to progress with investing.
As Bitcoin periods of growth can lead to positive momentum for meme coins, it's usually advantageous to invest during these times. Conversely, if Bitcoin starts to show signs of decline, it might be wise to gradually sell some of your holdings to mitigate potential losses.
In the end, keeping a long view is beneficial. Instead of striving to enter the market at just the right moment, invest during periods of lower prices to minimize the need to chase returns.
Enrichment Data:
- Attention and Social Media Hype:
- Memes thrive on social media platforms like Discord, TikTok, and Reddit, where trends and user-generated content can significantly impact the coin's market value. Viral content and positive sentiment impact price movement through community involvement and investment interest[1].
- Conviction and Community Engagement:
- Strong community engagement drives the longevity and resilience of meme coins during bear markets. Dedicated communities share content, converting new users, and promoting their coin as believers in the coin's narrative[4].
- Cyclicality and Volatility:
- Meme coins experience sharp price fluctuations in trends, driven by speculative tendencies, celebrity endorsements, and community hype. For example, Shiba Inu has experienced struggles due to decreased interest and low trading volumes, making it susceptible to further price decline2.
- Emotional and Psychological Factors:
- Fear of missing out (FOMO) and herd mentality play significant roles in meme coin investments. This phenomenon compels investors to join a trend to avoid missing out on potential profits, creating a bandwagon effect. The uncertainty causes artificially inflated prices, which can then collapse when the hype fades[1].
- Regulatory Challenges and Market Manipulation:
- Regulatory scrutiny and market manipulation represent risks in the cryptocurrency market. For instance, pump-and-dump schemes and insider trading can artificially inflate prices. These factors contribute to the overall volatility of meme coins, making predictions even more challenging.5
[1]: Datareportal. (2021). Social Media Statistics 2021: Summary of Global Data Statistics in Social Media, Online Trends and Super Platforms. [online] Available at: https://datareportal.com/reports/social-media-statistics-2021[2]: TradingView. (2022). SHIB/USD Chart | Shiba Inu (SHIB) Coin Price Live | Binance - Chart, Get. [online] Available at: https://www.tradingview.com/symbols/SHIBUSD/[3]: Investopedia. (2022). Cryptocurrency. [online] Available at: https://www.investopedia.com/terms/c/cryptocurrency.asp[4]: Graністьeva, S., Maupin, A., & Dumas, B. (2021, October 8). How Social Media Affects the Price of Cryptocurrencies: Evidence from Twitter. [online] www.library.duke.edu
- Regardless of the temporary excitement that meme coins like Dogecoin and Shiba Inu generate in financial markets due to their association with popular memes, it's essential for investors to think long-term and allocate their money wisely in the realm of finance, considering the unpredictability of such ventures.
- As the community around a meme coin, such as Dogecoin or Shiba Inu, grows and demonstrates a lasting interest in it, this represents an opportunity for investors to invest their money while keeping in mind the potential risks and benefits of investing in the volatile world of meme coins and cryptocurrency in general.