If you've been paying attention to any cryptocurrency news over the last few weeks, you've probably noticed Shiba Inu's incredible 1000% rally over October 2021.
Good thing I invested on September 3rd when it ranked 47. It finally crossed into the top 10 list with a new all time high (ATH) of $0.000088!
In this post, I go over why investing in meme aka community-based coins in the short term can be immensely profitable, what indicators I used to predict SHIB's price rally, why they're important and how we can apply those same principles to other cryptocurrencies. Namely,
- Project Research
- Google Trends
- Locking in low prices after the first big exchange listing
- Patience and Buying dips as necessary!
Why invest in Meme/Community based AltCoins?
Before we dive into this, you might be wondering, why do this at all? Why not just invest in safer cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) and call it a day? Why not let these safe investments just sit for 3-5 years as you'll still make profit?
Short Answer: Where's the fun in that?
Long Answer: The reason behind investing in Altcoins other than Ethereum is that they tend to have faster and stronger bull cycles in the short term (when they do rally, but equally stronger crashes as well), which allow you to grow your investments quickly and then put those profits into safer coins like Bitcoin and Ethereum.
I'm not an acountant so please consult a tax professional, as short term crypto trading does incur short term capital gains taxes, but you know what they say? Mo money, mo problems!
After watching Dogecoin's rise earlier in 2021 with much regret, I didn't want to miss out on what could be thousands in easy profits with a limited downside (of my small initial investment) in yet another "meme coin rally."
Shiba Inu's description is "SHIB, the dogecoin-killer" but it's more than that. It's official white paper (an in depth, authoritative report on a complex topic, aka an academic paper) affectionately called the woofpaper describes SHIB token as "an experiment in decentralized spontaneous community building."
I won't dive too deep into the SHIB ecosystem, as that's a long post of it's own. But the basic gist of it is that the ecosystem contains three coins (aka tokens). SHIB, LEASH and BONE, each serving its own purpose, based on the Ethereum blockchain, as SHIB, LEASH and BONE are ERC-20 tokens (ETH based cryptocurrencies are called ERC-20 tokens, more on this later).
SHIB, LEASH and BONE can be traded on several centralized crypto exchanges as of this post's writing as well as on on ShibaSwap which is the SHIB ecosystem's decentralized exchange (DEX, as opposed to Coinbase, BlockFi, Voyager etc. which are centralized exchanges, aka CEX).
Why Do Project Research?
In general, it's important to research the academic paper, goal and team behind the project to ensure you're not investing money into something that will just disappear overnight.
Just before the Labor Day long weekend on September 3rd, WeBull (a popular crypto and investing platform) listed SHIB and I happened to notice that on Reddit.
What Dogecoin and WallStreetBets' had proven earlier this year, is that memetic network effects that make your favourite TikTok influencer go viral can also help certain stocks and cryptocurrencies rally TO THE MOON!
I can't believe I typed that. I thought I was a professional!
But how do we measure this network effect? Search Engines are your friend! Enter Google Trends.
I went on Google Trends and searched for terms related to Shiba Inu coin. And the results speak for themselves. Google Trends classifies breakout terms as those that have a lot of buzz behind them. Meaning search volume is 5000% up in the past few weeks. Lots of people are searching for Shiba Inu. In the context of cryptocurrency, I happened to be there at the right place and at the right time.
Why do network effects matter?
Network effects enhance the traditional concept of word of mouth into something that grows exponentially. Imagine if you found an exclusive restaurant that limits reservations and is booked out months in advance. Or a product that's in short supply (like sneakers/baseball cards/Pokemon collectibles, gold bars, whatever you like!).
If you told 10 people, and they told 10 and so on, hundreds of thousands of people would know about it very quickly due to the exponential growth of word of mouth. That's the network effect. That's what makes your favourite Instagrammer's dancing video go viral, your favourite rapper's scandal reach World Star levels, or your favourite billionaire philanthropist's charity reach it's fund raising goals!
Now apply the same principle to cryptocurrencies, and you can see why exponential growths can benefit us. Take a look a those charts above for each crypto we've talked about in this post. Bitcoin, Ethereum, Dogecoin and Shiba Inu, all show exponential growth rates in their parabolic price curves.
Locking in low prices
This one is self explanatory, buy low and sell high and you've got yourself some good gains. But timing the market is next to impossible, so sometimes, if you get lucky and come across the right signal, take advantage of it right away!
In my case, I saw WeBull listing SHIB, and I had heard about this coin, the community around it and the project's overall goal. It made sense to put in some money I was willing to lose as the downside was limited, but the potential upside was massive. I was up roughly 4.5x in my initial investment 30 days after I first bought in, and then I doubled down and invested even more later!
Coinbase is an extremely popular exchange with millions of subscribers. As of this post, Robinhood has not yet listed SHIB but the signs are pointing in the right direction. When popular exchanges with large customer bases list a new crypto, they almost always go up due to increase in demand!
Twitter user Shytoshi Kusama is a Volunter Project Lead on Shiba Inu. Furthermore, the official @ShibToken Twitter announcement regarding NowPayments' aceptance of SHIB makes it very likely the rally isn't done yet!
Why do payments and token burns matter?
Utility & scarcity are the main reasons behind any currency's value, no matter what type of currency it is. The US dollar is strong due to its global aceptance in trade.
Bitcoin, Ethereum and many other cryptos have seen wide aceptance, thereby justifying their high prices. SHIB being acepted by payment providers adds to its legitimacy and high aceptance almost always means a rise in valuation. This is fantastic for early investors!
Acceptance is great but FIAT currencies (such as USD) are inflationary as governments decide to print more of it periodically. Token burns implement deflation in the total supply for that cryptocurrency making them scarcer. Thereby increasing demand (assuming demand doesn’t proportially decrease), which increases the token's value.
The concept of token burns isn't new to crypto. Ethereum started doing it, with it's new ETH 2.0 roll out. Burning tokens allows the ecosystem to keep a check on the currency's total supply. To summarize, increase in aceptance (utility) & decrease in total currency supply via token burns (scarcity) drives prices up!
Patience and Buying Dips
This is likely the hardest thing for us all to do. Morgan Housel's Psychology of Money has taught me that most people trade with emotions. If their investments double, most people would take the profits and run, even if being patient means seeing more volatility to an eventual 4x, or even 10x gain on their initial investment.
The key insight here is to be patient with an investment that's already doubled or tripled and wait to see what happens. The most important thing however, is to never invest money that is immediately required to pay bills.
Only invest what you're willing to lose. Limiting the downside is extremely important. It keeps you in the game!
Dollar Cost Averaging (investing small amounts every week, 2 weeks or monthly) during dips in price is also a good way to keep adding to your portfolio without causing long and short term financial harm.