If you are into cryptocurrency or simply very active on social media, there are good chances that you have heard the term “shitcoin“. Depending on who you ask, shitcoins could be a bad investment or a great way to make money.
Nevertheless, if you are a crypto trader or want to become one, shitcoins are a thing you would repeatedly encounter. It is, therefore, of great importance to understand what they mean, how they work, and how to identify them.
Here are some of the things you need to know to get up to speed on shitcoins:
What are shitcoins?
‘Shitcoin’ is used to describe cryptocurrencies with no identifiable purpose for existing. These are cryptocurrencies that have already failed or are failing. The term is associated with many altcoins created after Bitcoin gained popularity.
Unlike Ether and Bitcoin, coins identified as shitcoins have no real-world use and, as a result, are often short-lived.
Shitcoins often end up failing because they were not created in good faith and are not tied to any fundamentals. Hence, the moment investors lose interest in such coins, they dip in value dramatically.
How do shitcoins become valuable?
When cryptocurrencies are created, developers typically set a supply limit that creates scarcity. This means that the forces of demand and supply would determine the price of the specific cryptocurrency. However, given that shitcoins have no real-world use and are not backed by fundamentals, demand for them is purely arbitrary. In essence, shitcoins only have value because investors say they do, not because of any intrinsic utility.
Since the value of a shitcoin is driven mainly by investor speculation, investor perception is a key factor. An example is how Dogecoin drew much of its value from the public backing of Elon Musk. Thus, factors that affect how a shitcoin is viewed by investors are more important in determining its value than any fundamentals.
How to identify shitcoins?
Some qualities characterize Shitcoins. For one, they are usually created by shady developers and have no defined functionality. Other features include the lack of a quality whitepaper, a low level of liquidity, and few holders. Shitcoins are also often characterized by a sudden rise in price, which is usually followed by a nosedive. This particular characteristic is why shitcoins are considered bad investments for regular retail investors.
Should you invest in shitcoins?
Given the increasing popularity of cryptocurrency in Middle East countries like UAE, Pakistan and Iran, shitcoins are becoming an investment option for many people. However, it is generally advisable for new and regular investors to stay away from shitcoins. They are often marked by pump-and-dump schemes, which invariably hurt many investors. Nonetheless, some investors may be tempted to invest in shitcoins by the prospects of sky-high profits. While it is true that shitcoins do have the potential to give you insane profits, it is worthy of note that the risks are just as high. Thus, if you are going to invest in shitcoins, it is best that you only do so with money you do not mind losing. Finally, you must research the shitcoin you are looking into and evaluate properly before investing.
