Shitcoin: the most dangerous cryptocurrencies on the market

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by Santiago Coates *

The ecosystem of cryptocurrencies and blockchain technology has grown so much in recent years that Different types of digital assets have been createdas well as in the field of action, where there are different types of companies, each with its own characteristics and peculiarities.

In this new and innovative world There is a large selection of Shitcoinswhich can make you earn large sums of money in a short time in exchange for a high and fatal risk.

what are shitcoins

Shitcoin, also known as unwanted cryptocurrencies, are they? they lack the value, foundation and meaning of existence. They are formed in strange ways and their prices move according to an irrational law of supply and demand.

Some traditional cryptocurrencies linked respectively to the Bitcoin and Ethereum blockchains, such as bitcoin and ether, increase or decrease in price depending on the expectations of their future. In the case of BTC, because it aims to replace gold as a store of value; as for ETH, for its high functionality in the construction of decentralized applications (DApps, for its English acronym).

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Prices may also fluctuate based on future cash flows discounted to the present. In these cases, the flows are linked to revenue strategies such as those deriving from staking or transaction costs.

Instead of that, Shitcoins have no projections, have no future and can hardly be used to generate cash flows. Which trend they find themselves in depends entirely on whether someone else is paying more or less in the future.

As the famous tech tycoon said recently Bill Gates, they are 100% based on a crazy theory that someone will pay them more than me. Although his comment refers to all cryptocurrencies, this is more in line with what is happening with shitcoins.

Not all cryptocurrencies are as stable and strong as Bitcoin. Source: Pexel.

Two clear examples

Unfortunately for many savers and investors right now There are hundreds of shitcoins on the market. However, both are the biggest, the most popular, and the most innovative doecoin Yes Shiba Inus.

As we know, dogecoin was developed on December 6, 2013 by a couple of software engineers for fun. Billy Markus, an IBM programmer, decided to create his own cryptocurrency to counter Bitcoin, which was then shrouded in an aura of mystery and known only to a small IT market.

To explore the idea further, Markus Jackson reached out to Palmer, an Adobe employee who bought the www.dogecoin.com domain in honor of the dogemem, the Shiba Inu dog breed that traveled the Internet.

Over time, Internet users have gradually accepted it to become what it is today. one of the largest cryptocurrencies in the world with a market capitalization of over $ 8.9 billion.

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To get an idea of ​​its size, just look at the value of the largest Argentine companies: YPF ($ 3.4 billion), Pampa Energa ($ 3.15 billion), Grupo Financiero Galicia ($ 2.07 billion) ) and Banco Makro ($ 1.92 billion). . billions).

Dogecoin was the first and most popular shitcoin to date. Source: Pexel.

To tackle Dogecoin, an anonymous user named Ryoshi decided to release Shiba Inu in August 2020, another shit coin that also uses the dog of the same breed as an image.

Thanks to its widespread online adoption and some positive feedback from industry figures such as tycoon Elon Musk, the Shiba Inu has achieved a market value of over $ 6.5 trillion. also included today in the ranking of the largest cryptocurrencies.

In both cases, the wild growth was not supported by solid foundations but simply fueled by the irrational exuberance of the market, made up of millions of savers, investors and traders who believe that someone else will pay an even higher price in the future. .

Something similar happened in the midst of the pandemic with the GameStop or AMC companies, which have had impressive growth in a few months just for fun, but have held out over time.

Shiba Inu was born to compete and dethrone Dogecoin as the best meme cryptocurrency. Source: Pexel.

The danger of volatility

From launch to today Dogecoin was appreciated by around 16,000%. Based on the low reached in May 2015, growth is close to 80,000%. Furthermore, In January 2021 alone, Shitcoin jumped 683%, while in April of the same year it increased by over 529%.

Of course, only those who made the purchase at the right time could enjoy these phenomenal returns, because There have been strong pullbacks amid these bullish trends.

For instance, the low of May 2015 came after a sharp decline of 96%. From January 2018 to March 2020, Dogecoin lost 93% of its market value. And from the all-time high reached in May 2021 to date, the cryptocurrency has already recorded a drop of almost 91% in dollars.

A similar thing happened with the Shiba Inu, which has had impressive series of expansion (+ 830% in October 2021 alone for example) but also destructive declines (-87% from the same maximum at the current price).

What does it mean? This volatility is very dangerous if not managed properly and shitcoins like Dogecoin, Shiba Inu and many others are too volatile.

Furthermore, It has been shown that it is nearly impossible to consciously and sustainably hit the floors and ceilings of an object over time, regardless of the tools or methods of analysis used.

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The prices of unwanted cryptocurrencies can fluctuate wildly in a short time. Source: Pexel.

The risk is high

However, One of the ways to reduce this Shitcoin risk is through position sizing. If our net worth is $ 100,000 and we invest 99% ($ 99,000) in Dogecoin, the game can work very well if we take an uptrend like the one above, but we can also lose almost all of our money if we fall below a trend. on the upside it suffers setbacks as usually happens.

On the other hand, if we invest say 1% ($ 1000) of the total portfolio, a drop of 80%, 90%, 95% or even more would not affect us that much and we could continue to invest in other alternatives. trying to raise capital to win back.

It is important to remember that the risk part must cover all the shitcoins that interest us because if we take single positions as a reference, the risk could be very high. Know, The 1% in the example above should be spread across several cryptocurrencies of that class.

This risk-amount relationship also applies in the other direction: if we put 100% of our wealth in a very stable asset like Procter & Gamble stocks, the risk would not be well managed because we would lose everything if something went wrong with That. a company.

It is important to diversify between different cryptocurrencies and assets to ensure stability. Source: Pexel.

The perfect balance?

Knowing that shitcoins are very volatile and the risk is high, it can be concluded that a reasonable balance is achieved when the wallet consists of a part of shitcoin. fair enough that the profit is satisfactory, but small enough that the potential loss is not fatal.

At this point, in the cryptocurrency space, you can invest in stablecoins, which have very low volatility and are tied to physical assets such as dollars or gold. Diversification through other conventional financial assets such as stocks, bonds and commodities is also possible.

As you can see, by using shitcoin or junk cryptocurrencies, you can earn large sums of money in a short time in exchange for greater risk. The key is to analyze and structure the entire portfolio to capture potential gains while maintaining a level of risk that is appropriate to our investor profile and time horizon.

* Santiago Coates has a degree in Business Administration and Communication. Cryptocurrency investment analyst and researcher at Inversor Global.

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