How smart people invest in dumb memecoins: 3-point plan for success

Back in 1984, a U.K. television advertisement for Kit Kat chocolate bars was set in a music label’s office where a keen young band played their demo for a bored music executive. Afterward, they were served the famous chocolate bars and the manager said:

“You can’t sing, you can’t play, you look awful… you’ll go far.”

This is as close as I can get to explaining the appeal of memecoins to sensible, smart and intelligent people. But don’t be fooled: Smart people are making a lot of money out of dumb memecoins — invariably at the expense of not-so-smart people without good timing.

And timing is everything in memecoins, which typically have no utility for anything except having fun and making money. So, without any fundamentals to trade on, can you still take a “smart” approach to making money by trading memecoins?

On Yavin, co-founder and head of business at Syndika, comes in with a hard “no” to that idea.

“Anyone who says they have any trading strategies with memecoins is talking absolute BS,” he says, adding the only reason memecoins have experienced a rush of interest this year is because of the bear market and crypto winter.

“People need to do something with their investments, and they cannot wait until the next bull run. These people are not interested in investing in the real projects that take years to build. And they’re all about flipping and all about making a quick buck. That’s the reason,” says Yavin. 

Vitalik Buterin’s best-ever investment was DOGE

But no lesser figure than Ethereum co-founder Vitalik Buterin — possibly the smartest person in the entire industry — turned a $25,000 investment into the original memecoin Dogecoin into many millions. He told podcaster Lex Friedman in 2021 that he’d sold $4.3 million of DOGE during 2020’s lockdowns and reports at the time suggested his remaining stack of Dogecoin was worth $20 million.

“That was one of the best investments I have ever made,” he said, although he added that when he bought at $0.008, he certainly did not expect that return. He gave his profits to GiveDirectly.

Tom Mitchelhill is a financial journalist who worked for various cryptocurrency publications and now writes for Cointelegraph — so, he’s definitely on the smarter and better-informed end of the spectrum. 

He tells Magazine he finds memecoins fascinating. Mitchelhill discovered them early on in his crypto writing career and has been engaged ever since.

“My interest is financial – this is a for-profit play – but it’s also fun,” he says.

“They can be dumb, but there is something about memecoins that is also culturally significant. Why else would a huge number of people get involved?”

What should you look for in a memecoin investment?

Evgen Verzun, director of Kaizen.Finance — a secure blockchain platform for token launches — is a big fan of memecoins and understands the need to try and jump on what you think the next one might be. 

“Let’s say you have ‘missed the hype train’ of Dogecoin but you still want to become a crypto millionaire. What do you do? You are looking for something similar that hasn’t ‘left the station yet,’” says Verzun.

For 120,000 or so hopefuls this year, the train gathering speed away from the station was PEPE. Based on the popular crypto meme of Pepe The Frog (but having no relationship to creator Matt Furie), the website cautions it’s “totally useless,” which strangely seems part of the appeal.

Mitchelhill, for one, likes PEPE:

“When it comes to the most recent king of memecoins, PEPE, the founders categorically say there is no utility, and that makes me laugh,” he says.

According to CoinMarketCap, the market cap of PEPE surged to $1.5 billion in early May, but then the price plunged around 80%. Showing the massive volatility for which memecoins are known, since the first draft of this story was written, the market cap has increased by $250 million to more than $600 million.

While the people who bought at the very top probably haven’t made a wise investment, plenty of smart people make money on the way up and get out before it plunges.

Mitchelhill claims to not be much of a gambler. He tends to invest small and hopefully exit with more. He explains the real killing is made by insiders who tend to buy half an hour into the launch.

With PEPE, once Mitchelhill had reached a 500% profit, he took his money out. This is typically how smart investors operate — some gain, some risk, some returns. Having a clearly designed plan for when to take profits is a smart move. The vast majority of people hang on to their investments in the hope that:

a) They will go up further, or

b) They will get back to their peak price. 

Three-point plan for trading memecoins

Sara Jane Kenny, Algorand ambassador and founder of OffChain Ireland, is another investor who is very clear about what she is doing and says her portfolio has increased over the bear market as a result of trading memecoins. She has traded in the likes of DOGE, PEPE, SFM and COOP. 

“There are pros and cons to everything, which I’m excited to get into. Many memecoins at the beginning start as just speculation, then it can either grow to pump and dump or they start to build utility and a strong community around it — these [latter ones] are the types of ones I go for.”

Her three-point plan to make money while trading memecoins, in particular, is research, patience and efficiency.

Kenny uses the example of COOP where she researched the origin of the token, the team, the community and what progress was happening. After selecting a promising token, she then considers the most efficient way to trade, what fees might be included, transaction speeds and the different prices across different DEXs and CEXs.

She then advocates watching the market and learning the patterns for a time to see when the support comes in, and when the “sells” start happening. 

“Buy low, sell high — it’s easy on paper, but it takes a lot of time to get it right, so practice and keep notes, as the markets can be volatile. Remember to take profits, and only invest what you can afford to lose. You don’t have to sell everything at once: dollar-cost average in, and out, to gain the maximum effectiveness with each trade,” says Kenny.

She reckons the best memecoins are the ones that have a strong community, are building utility, and have some sort of meaning even if it’s a joke. That’s why she sees potential with COOP.

For the uninitiated, it’s an Algorand ecosystem coin based on a series of hilarious fictional videos by Cooper Daniels following an influencer’s quest to travel to Bitcoin Beach. Airdropped to the community, and with Daniels keeping zero tokens to himself, it’s sparked a ton of content and games related to COOP, which surged to become Algorand’s fourth largest token.

“For the rubbish ones, you need to look out for the red flags, like the creator holding the majority amount of the token, if the team is not doxed, there is no progress being made with the token or community. Oh, and make sure the community is not just bots, too.”

Being early is the same as being right

Harry Horsfall, CEO of Flight3, is bullish on memecoins. When asked why smart people buy memecoins, he points out that being early is for winners. A successful Web3 entrepreneur whose business was recently taken over by Steven Bartlett of Dragons’ Den fame, he likes to dabble because of the excitement and because he feels his finger is on the pulse and he’s ahead of the retail punters.

“I think the PEPE coin is brilliant. It very clearly says on the website that it has no utility and that there is no roadmap. It’s just the network effect,” he says.

Horsfall sees people having fun with memecoins but notes there are some serious marketers pulling the levers in the background.

“We are investing in ideas – and yes, 99% of them are not going to work, but there is always that 1%. If you look at Dogecoin, most people bought at 0.000…” Here, Horsfall loses count of how many noughts, but suffice it to say that if Dogecoin ever goes to a dollar there are going to be some very happy people.

“It is a bit like winning the lottery. We are all on a journey, working the day job, but maybe tomorrow we will win.” 

NFTs are memes, too, really

Neil Bodl, full-time degen and founder of BodlNFT, took a break from his day job to explore dollar-cost averaging on Bitcoin and Cardano, but unfortunately, his entry coincided with a bear market. But as the market bottomed out, NFTs caught his eye.

“I’ve always been fascinated by digital collectibles and pop culture. I’ve been watching Dogecoin from the start, for example, but in general, for memecoins to work, they need a certain momentum and push from a community.”

Bodl has long been aware of the Pepe The Frog meme, and watching the chatter on Twitter, he reasoned quite early on that a memecoin based on crypto’s most popular meme could quickly catch alight. 

“A meme like PEPE is faster to share than text or words,” he says, tying it all back to philosophy.

“The psychology of all memecoins is awfully simple. People want just two things in life — bread and circuses. Memecoins satisfy those needs, providing plenty of entertainment and dough. Generally speaking. It only becomes a question of balance because, in this world, nobody can have all the money and all the fun.”

Bodl says that sophisticated traders can use the entertainment angle to make serious money.

“I’m not ashamed to say that I’m a meme enjoyer, but my stance on memecoins reflects their own philosophy: I take them as the gag they are supposed to be. Crypto snobs think that memecoins demean and undermine the reputation of crypto as a whole, but I’ll say that if the industry can be undermined by a bunch of memes, it probably has much bigger problems to worry about,” says Verzun.