The crypto market is rife with scams and hype, luring unsuspecting investors to pour money into digital assets that often have little substance or viability. As an investment advisor, I have seen the rise and fall of numerous so-called «shitcoins» — cryptocurrencies with no unique value proposition besides empty promises of overnight wealth.
In this article, I will peel back the curtain on some of the shitcoin mania sweeping the crypto sphere, and explain why many of these assets inevitably go bust. My insights are informed by years of experience tracking asset bubbles and implosions across traditional and digital asset classes. If you currently hold or are considering purchasing shitcoins, this article may give you pause.
The Anatomy of a Shitcoin
What defines a shitcoin? While cryptos like Bitcoin and Ethereum provide unique utilities like digital payments and smart contracts, many alternative coins offer nothing beyond speculation. Shitcoins often have:
- No whitepaper explaining their purpose.
- Anonymous development teams.
- Promises of 1,000X returns.
- Aggressive shilling on social media.
These assets depend entirely on hype and «FOMO» to drum up investor interest. Often their value dramatically collapses once the mania dies down.
Dogecoin is perhaps the original meme-cryptocurrency with no real-world use case. Born as a joke in 2013, Dogecoin saw its value balloon thousands of percent in 2021 driven solely by speculation and Elon Musk tweets.
However, what goes up must come down. Today Dogecoin trades over 80% below its all-time high, leaving late FOMO buyers deep in the red. This boom and bust cycle is common for assets with no underlying utility.
More nefarious shitcoins employ «rug pull» scams, where developers hype up a new coin before suddenly disappearing from social media, taking investors’ funds with them.
In 2021, rug pulls stole over $2.8 billion from crypto traders according to Chainalysis. From Squid Game Token to Ember Token, such scams abound. Investors mesmerized by the fear of missing out often overlook glaring red flags.
Meme-inspired shitcoins like Shiba Inu Coin racked up thousands of percent gains in 2021 based on viral buzz and coordination among Reddit groups like r/WallStreetBets.
However, attempting to drive up the value of an intrinsically worthless asset is akin to playing hot potato. When the music stops, meme coin holders tend to be left holding the bag. In 2022, Shib and Doge have crashed over 70%, leaving recent FOMO buyers devastated.
Non-Fungible Tokens (NFTs)
NFTs took the crypto world by storm in 2021, with JPEGs of bored apes selling for millions. But as with most speculative manias, NFT prices have since collapsed up to 99% from their highs.
Investors are realizing these assets provide little practical utility besides digital bragging rights. Like the beanie baby craze of the 90s, NFTs appear to be a largely speculative fad with little lasting value for most holders.
The Psychology of Shitcoin Manias
What drives shitcoin hype cycles and inevitable busts? Human psychology. Speculative bubbles tend to form when narratives of overnight wealth catch on. Information cascades spread FOMO, and new investors rush in based on price action rather than fundamentals.
Shitcoin developers leverage this human tendency towards greed and confirmation bias. Ultimately, assets detached from reality can only defy gravity for so long before cratering.
Regulators have been slow to crack down on the Wild West world of crypto. However, major agencies like the SEC are increasingly concerned about shitcoin scams designed to evade securities laws.
In 2022, we have seen stairs like the $2 trillion infrastructure bill containing expanded IRS crypto oversight, and SEC statements calling out meme coin marketing. Though enforcement is still spotty, tighter regulations would likely dampen future shitcoin manias.
Investor Beware — Avoiding Shitcoin Pumps
How can investors protect themselves from shitcoin scams?
- Focus on quality over hype. Opt for tokens like ETH and BTC with real-world utility and lasting value.
- View overnight 10X gain promises with extreme skepticism.
- Beware of assets with anonymous teams, grandiose claims and manic social media hype.
- Avoid buying into short-term vertical price moves. Favor fundamentals over FOMO and memes.
- Seek regulated on-ramps like Coinbase over suspect decentralized exchanges. Stay attuned to looming regulatory crackdowns.
And remember — if an investment sounds too good to be true, it probably is.
In conclusion, shitcoins powered by hype routinely rise and fall, burning naive investors in the process. Meme-value, anonymous developers, pinky promises of riches and social media shilling are red flags. Favor quality over speculation, and avoid assets detached from fundamentals.
With tighter regulations on the horizon, the days of totally unsupervised shitcoin casinos may be numbered. By focusing on utility and long-term viability, investors can avoid the pain of vaporware shitcoin busts. The crypto space undoubtedly holds tremendous promise — but hype must ultimately give way to reality.