The launch of the brand new spot Bitcoin (BTC 0.37%) ETFs final January was one of the crucial profitable ETF product launches ever. In a span of simply 12 months, these spot Bitcoin ETFs attracted greater than $100 billion from traders, and have change into one of the crucial widespread methods for people, hedge funds, and institutional traders to get publicity to the crypto asset class.
So it is utterly comprehensible why fund managers have been inundating the SEC with purposes for brand new spot crypto ETFs, together with some that function meme coins. As a outcome, it is turning into more and more seemingly that a meme coin ETF will debut in 2025. Perhaps you can be tempted to make investments, however listed here are a number of the reason why that might be a colossal mistake.
The false promise of triple-digit returns
Let’s be sincere right here. The first cause why many individuals can be tempted to make investments in a meme coin ETF is to get entry to triple-digit returns. Meme cash are identified for his or her potential to skyrocket in worth, and certainly, if you happen to have a look at how a few of these meme cash carry out throughout very quick intervals of time, it is arduous not to be impressed.
Picture supply: Getty Pictures.
However this is the factor: these returns are hardly ever ready to be replicated over a long-term time horizon. Meme cash, by their very nature, are meant to be ephemeral and transient. They try to capitalize on new viral developments, and will not be meant to be long-term investments.
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Furthermore, since viral developments come into and out of circulation in a short time, it is virtually unattainable to predict which meme cash are going to carry out effectively at any level in time. One quarter, it is likely to be dog-themed meme cash. The following quarter, it is likely to be cat-themed or frog-themed meme cash.
As a cautionary story, contemplate the case of Dogecoin (DOGE 0.04%). After a transient, momentary spike in worth in the course of the crypto market bull market rally in 2020-21, it has been a big disappointment. This 12 months, for instance, Dogecoin is down 20% — and that is even with “DOGE” making information headlines actually each single day. So, despite the fact that some analysts now give a Dogecoin ETF a 74% likelihood of being permitted this 12 months, that is one ETF that I’d positively keep away from.
The hidden dangers of meme cash
Whereas ETFs are extremely regulated, meme cash will not be. And that creates the potential for a lot of unhealthy habits in the crypto market. Many meme cash, sadly, are pump-and-dump schemes. Some are outright scams. And even meme cash launched by celebrities and high-profile public figures can collapse in worth in a single day, main to a lot of awkward questions later.
Making issues much more troublesome, there are actually 1000’s of latest meme cash being created each day, so it is virtually unattainable to vet all of them. It is very easy to begin a new cryptocurrency, however a lot more durable to provide you with a genuinely useful new coin.
In case you’re an optimist, that is a drawback that the ETF software course of ought to remedy. In concept, solely the most secure, most trusted, and most liquid meme cash will even be thought of for an ETF. And solely the most effective of the most effective will ever get a seal of approval from the SEC.
However keep in mind what I instructed you about meme cash being ephemeral and transient? By the point a meme coin ETF lastly begins buying and selling, will probably be virtually unattainable to make any severe cash from it. The second of virality will seemingly have already handed on Day One, and will probably be too late for traders who blinked and missed it.
We’re already seeing a model of this phenomenon now, as meme cash migrate from decentralized crypto exchanges to centralized crypto exchanges resembling Coinbase International. By the point this course of occurs, traders have already missed out on a large quantity of upside.
PEPE / TetherUS chart by TradingView
Simply take a have a look at this chart for Pepe (PEPE 2.07%), the favored frog-themed meme coin with a $4 billion market cap. The coin launched in mid-2023, however Coinbase solely listed this meme coin for buying and selling in November of final 12 months. By that point, it was already too late. You would have already missed out on Pepe’s outstanding upward trajectory that made it so widespread with traders. If a Pepe-based ETF by some means will get permitted this 12 months, I would not contact it with a ten-foot pole.
99% of individuals lose cash with meme cash
As a outcome, is it actually any shock that 99% of individuals lose cash with meme cash? It is arduous sufficient to choose the best meme coin. However you even have to get in early sufficient to make any actual cash. And you will have to get out quick sufficient to keep away from being was exit liquidity by unscrupulous insiders.
Thus, in case you are hoping that a dog-themed meme coin ETF will flip you into a crypto millionaire, you is likely to be barking up the improper tree. Investing in meme cash is speculative sufficient, and investing in meme coin ETFs would solely compound these issues.
