Invest in Dogecoin (DOGE -7.63%)the leader of the same corners, and Shiba Inu (SHIB -7.87%)the finalist, is risky in the best conditions. But with the right information in hand, you can mitigate some risks and stack the cards in your favor as much as possible.
Let’s explore three key concepts you’ll need to understand if you want to make these investments successful.
1. Attention determines short-term price action
What is a meme?
One way to think about the answer to this question is to consider that memes are themes or narratives that increasingly capture people’s attention, expanding like the ripples of a pond. In the case of Dogecoin and Shiba Inu, the theme is simply a silly, cute image of a dog, and the narrative is that the cryptocurrencies associated with these images are go to the moonwhich means a huge price hike due to the widespread attention they are getting.
But, as we all know intuitively after a lifetime of hearing and making jokes, memes rarely last long. Funnier and newer coins come along, or people lose interest in the story when the value of their coins decreases instead of making them rich overnight.
From this we can derive the first concept you need to know to succeed with these two meme coins: attention can determine short-term price action, but it is fickle. If you are investing for the long term, as is advised, you cannot rely solely on the momentary popularity of these memes for success.
The takeaway here is that if you see a few Doge or Shiba Inu memes on social media, it is likely correlated with an increase in price, although there is no rule that states that it must be so. However, this is not a signal worth taking into account when deciding whether to invest or not. This brings us to the next point.
2. Conviction determines long-term price action
When a coin consistently attracts attention – as Shiba Inu and Dogecoin arguably have over the years – it implies several things.
First, it means that memes are attractive enough to some people that, on average, they continue to produce and transmit meme content, regardless of the short-term price movement of the coin. This activity helps maintain the coin’s share of attention in the public’s mind over time, and it can occasionally attract new investors to drive up the coin’s price. You can think of this as the coin holders offering their labor to systematically do free marketing for the project. It’s a bullish sign.
Second, and more importantly, this means that there are coin holders who are unlikely to sell until the price increases significantly. After all, if they are already doing free work to ensure the coin continues to attract attention, they are likely hoping that this activity will pay off in the form of higher prices down the line, when new capital will flock.
But no one invests in a coin for a paltry gain – people turn to the fences and seek gargantuan (and perhaps unrealistic) returns of several multiples of their initial investment. Holding a highly volatile cryptocurrency for years is much harder to do if you don’t have the belief that the opportunity cost tying up our capital will eventually bear fruit.
Thus, the population of holders with strong conviction about the future prospects of Dogecoin and Shiba Inu is likely a major determinant of the coins’ actual future growth. The more people who refuse to sell and take the time to boost a crypto, the higher the floor price of the coins. This makes them slightly less risky compared to other, less popular and less battle tested meme coins.
Look for any signs of a change in the number of people having long-term conviction with these coins, as the price is likely to move up or down accordingly.
3. cyclicality
It is not possible to predict the future. But understanding that Dogecoin and Shiba Inu both exhibit some cyclicality in their prices is a simple way to feel a little better about how to plan your investment, assuming you don’t want to pursue a pricing strategy. dollar cost average (DCA) strategy.
Most cryptocurrency investors are familiar with the idea of the four-year time limit. Bitcoin (BTC 1.27%) ride a bike. The idea is that due to periodic Bitcoin halves which halves the rewards for mining new coins, the price of the asset oscillates while trending upward in a vaguely predictable manner. Dogecoin, and probably Shiba Inu as well, follow a similar cyclical pattern.
The reason is that over the past 10 years, the prices of Bitcoin and Dogecoin have tended to be very highly correlated on average. So when Bitcoin halvings happen, it tends to mean higher prices soon after, which tends to happen around the time Dogecoin is also in a strong uptrend.
Use this information to your advantage. If Bitcoin wins, expect Dogecoin to follow sooner or later. Likewise, it may make sense to sell some of your coins if Bitcoin starts to fall.
Keep your eyes on the long term. It’s a better idea to buy when prices are low than trying to catch up when these pieces are trending and attracting more and more attention.