Matrixport’s head of research said Memecoin buyers hope to earn “life-changing money,” but only a select few make it to the jackpot.
Memecoin has made a strong recovery over the past week. Tokens such as Pepe (PEPE) and Milady (LADYS) have seen incredible price increases despite having little apparent utility.
On May 10, Matrixport’s Markus Thielen stated that some memecoin buyers bear a striking resemblance to lottery participants.
“There’s been a lot of research on how most people in lower socioeconomic groups play the lottery (…) because it’s their way out of the quagmire downstream.”
“Lottery speculators are trying to make a quick buck, which I think is very similar to cryptocurrencies.”
One memecoin that has recently caught the attention of enthusiasts is PEPE, a cryptocurrency inspired by the “Pepe the Frog” meme. It launched on April 14 and reached a peak market cap of $1.83 billion a few weeks later on May 5.
However, the token’s price plummeted almost as much as it rose, falling 57% from its peak in just five days, according to CoinGecko, and its market cap is now less than $1 billion.
Pepe’s price since release on April 14th. Source: CoinGecko
However, there is also an “entertainment” factor when buying memecoins.
Dr. Anastasia Hronis, a clinical psychologist who specializes in gambling addiction, believes younger investors are more likely to be motivated by the “fun, entertainment factor” of memecoins.
“Many cryptocurrency investors may buy memecoins to be part of a community or for entertainment value.”
However, for many hoping for a return on investment, Hronis warns:
“Memecoins like PEPE can be interesting, but in general they are high risk investments that may end up having no intrinsic value in the long run (…) Investors are basically gambling. Its popularity to the extent that principles relating to investment are undermined”
In an emailed statement, Lucas Kiely, chief investment officer at digital asset platform Yield App, argued that unlike bitcoin, ETH and stablecoins, memecoins lack fundamentals. Their prices are driven entirely by “arbitrary factors” such as public sentiment, and are “virtually unpredictable.”
“Even the most sophisticated models were unable to distinguish any obvious patterns.
Experts and whales are still plagued by FOMO
The unpredictability of memecoins does not mean that there are no opportunities for higher returns. Professional investors and “crypto whales” have entered the industry and will continue to do so.
Former tech entrepreneur Jeffrey Huang, better known as “Machi Big Brother,” bought a total of 73.4 ETH (approximately $137,000) of Pepe tokens in the past few days, according to blockchain analytics firm Lookonchain.
After the price dropped, three other whales also started buying PEPE on May 9.
3 whales start buying $PEPE After the price fell.
0x50C1 1.4T $PEPE($2.76 million) from #Binance When the price is $0.00002054.
0x2Baa bought 212B $PEPE($429K) 223 $ ether($412K) is $0.000001942.
0x3AE8 bought 424B $PEPE($864K) 450 $ ether($831K) is $0.000001957. pic.twitter.com/Y3wFOshkDI
— Lookonchain (@lookonchain) May 9, 2023
“When prices are high, that’s justified. If it’s suddenly generating a lot of news and stories, then I think those types of things need investment as well.”
Thielen, however, warned investors against putting money into memecoins such as PEPE, which has an anonymous development team and no clear roadmap.
“Our mission is to stay ahead of everyone else and get out when the momentum changes. That’s why it’s important to place stops and stops when trading risky assets.”
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As reported by Cointelegraph