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Top meme-based cryptocurrencies, Dogecoin and Shiba Inu, witnessed massive rallies on Thursday, stoking fears that the community-driven pump in the tokens may prove to be a death trap for retail investors entering at the current levels.
The surge seen over the few sessions has propelled these Shina Inu-based cryptocurrencies among the top 10 digital assets, with a combined market capitalization of close to $80 billion.
Dogecoin, which broke above the psychological level of $0.30 today, has registered gains of about 11,000% on a one-year basis and 50% on a one-month basis. On the other hand, Shiba Inu has gained 8,50,00,00% in the last one year and 1,000% alone in the last 30 days.
Experts are of the opinion that rather than fundamentals, communities who believe in these meme tokens are fueling the rally.
“There are no fundamentals driving the prices, as these are just community tokens. These are pump and dump coins, which don’t have any use cases. Unfortunately, Shina Inu is kind of impacting the whole crypto market volumes as well," said Sidharth Sogani, founder and chief executive officer, Crebaco Global, a research, rating, and intelligence company focused on blockchain and cryptocurrencies.
As per industry estimates, Shina Inu’s trading volume was three times that of bitcoin’s on certain exchanges.
Earlier in the year, shares of GameStop also had seen a massive rally due to similar attention on social media and chat rooms, including Reddit.
Similarly, Dogecoin in February had surged over 800% within a span of 24 hours after the cryptocurrency got attention from a lot of users on the Reddit message board. However, despite the recent rally, the meme token is still 60% away from its all-time high of $0.73, which it had hit in May 2021.
Another factor that experts feel might be driving the rally in meme tokens is their low prices.
“The volumes are almost exclusively trading volumes, as there is no delivery-based trade. Also, I feel that since in the top 10 coins, these two tokens have the lowest price, some retail investors might be going for them thinking these are better bargain. However, this is wrong thinking," said Ajeet Khurana, founder, Genezis Network, a think tank for crypto startup investments.
According to Hitesh Malviya, founder, itsblockchain.com, a blockchain and cryptocurrency publication, another factor that might be driving prices in these meme tokens are fear of missing out by retail investors.
“There is a large community behind the rally and, especially in the case of Shiba Inu, they believe that the price will hit $1. But investors should understand that it is not possible because of the circulating supply of Shiba," said Malviya.
There is also a rumor that the US-based trading platform Robinhood is going to list Shiba Inu.
However, experts warn that despite the breakneck rally, investors would be better off buying fundamentally sound coins such as Bitcoin or Ether.
“Investors should be very careful at these levels because the correction could also be long," said Malviya.
According to the expert, Shiba Inu already hit the top and started correcting since the morning. “The meme coin found resistance at the $0.008 level on Thursday morning and has since corrected 20-25%," Malviya added.
Echoing similar views, Sogani said that retail investors shouldn’t don’t get these tokens, as they are highly volatile and totally speculative. “Don’t join the rat race and stick to the fundamentally sound projects. The rally looks lucrative, but jumping into it is like playing with fire," he added.
While both the meme coins are having a great run over the past few days, it is worth mentioning that they have been at odds with each other, and the communities backing their respective coins are fueling the rally.
“While both are meme coins, we have to look at them, individually. Dogecoin might sustain, as it has some technological use cases such as we can store records and create immutable ledger. On the other hand, Shiba Inu is just a token and has no purpose. So, because I believe the rationality eventually prevails, I don’t see Shiba Inu rally sustaining," said Khurana.
“Still, I can never advise anybody these coins regardless of levels, especially Shiba Inu. In these coins only market technicalities are working," he added.
