Shitcoin is a cryptocurrency with no value, use case, or purpose. Most shitcoins are released without a viable business model. Shitcoins are more influenced by hype and over-the-top promotion than fundamentals. Although they promise huge returns, their value takes a nose dive, causing investors to incur large losses.
The etymology of “shitcoin” is not certain, but the earliest usage was on Reddit in 2010, soon after Bitcoin first appeared. The post accurately forecasted that success of Bitcoin would give rise to a tide of useless spin-offs. It came into wider use in 2018 during the crypto crash, when economist Noriel Roubini employed it in testifying in front of the US Senate in an attack on Bitcoin and other such cryptocurrencies.
Shitcoins tend to appear in crypto market bubbles. The 2016-2017 ICO bubble and the 2020-2021 DeFi and NFT bubbles introduced a new generation of such tokens. Although their presentation seems high-tech, the majority of them are non-functional and are only introduced to lure novice investors.
Types of Shitcoins
1. Scam Shitcoins
These are flat-out scams, made with the sole purpose of taking Bitcoin or Ethereum from ignorant investors. Promoters scam money after initial coin offerings and leave worthless tokens behind. Pump-and-dump schemes, phishing operations, and Ponzi schemes are all part of this group.
2. Unviable Shitcoins
There are projects with good taste but that flop due to regulatory issues, poor timing, or some competition. These tokens lack long-term utility and ultimately flatline as far as price is affected.
Why Traders Invest in Shitcoins
- High return expectations: Traders are drawn to colossal returns, such as the absurd success of Dogecoin.
- Desire: The lure of easy money fuels thoughtless investment in poorly researched assets.
- Price Sharpness: Cheap tokens equal an open promise of high confidence for loose change.
A) Growth Opportunities
Numerous traders are attracted to shitcoins due to their seeming promise of making phenomenal profits from modest investments. Consider the example of Dogecoin: in December 2020, it was only $0.004. As of mid-April 2021, its price had risen 100 times. An investment of $4,000 at the beginning of 2021 would have mushroomed to $400,000 within a matter of months.
Those kinds of astronomical gains are not common with established cryptocurrencies such as Bitcoin. While a rise from $20,000 to $60,000 is a 200% increase, Dogecoin’s 9,900% rise in the same time period is typical of the explosive growth traders look for in altcoins-especially those that have small market caps and are highly volatile.
Driven by visions of financial independence, investors get misled into popular whitepapers and sensationalized campaigns, thinking they’ve uncovered the new big crypto gem.
B) Acquisitiveness
Greedy is certainly a key driver of the popularity of shitcoins. While established financial assets and blue-chip cryptocurrencies offer stability and slow growth, they seldom offer the meteoric returns that so many speculative investors desire.
For each altcoin that skyrockets, hundreds fail and disappear in the fringes. The meteoric rise of Dogecoin has been attributed more by many to Elon Musk’s tweets than any solid basis. Had such celebrity publicity not been present, it remains doubtful whether it would even have taken off.
C) Price Sensitiveness
Another reason for the popularity of shitcoins is that their price per unit is low. For example, a coin at $0.01 enables one to purchase 100,000 tokens just for $1,000. That same money will buy only a part of an Ethereum token.
This sense of abundance gives investors psychological satisfaction and the fantasy of owning something with high potential. Many are attracted by thoughts like, “If this token hits $1, I’ll be rich.” However, this mindset prioritizes quantity over quality and often neglects the importance of considering the project’s fundamentals, use case, and long-term viability.
How to Identify a Shitcoin
Avoid falling prey to it by considering:
- Is there an evident use case or demand in the market?
- Does the project have credible partners and devs?
- Are there ties or uses in real-world applications?
Investors must look for altcoins that participate in DeFi, lending, or blockchain gaming spaces with strong market demand and production.
The Reality
The majority of shitcoins disappear into thin air due to poor adoption, poor utility, and a lack of developer support. A good crypto investment should have specific financial functions, backed by good tech and adequate governance. In their absence, a token will likely be a shitcoin that will lose its significance.
While the lure of quick profits is strong, sensitive and cautious investing remains the most effective safeguard against worthless coins that look like revolutionary cryptocurrencies.