What's the common thread between joke cryptocurrencies like Dogecoin and (CRYPTO: DOGE) Shiba Inu, (CRYPTO: SHIB), and actual serious cryptocurrency investments like Solana (CRYPTO: SOL)? There's more than one right answer.
But one of those answers in particular is especially salient for those who are praying that their investments go up. Let's take a look at one number that suggests there's a real chance of that happening.
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Investors love these assets, often to their detriment
According to a survey of 800 people conducted by the Kraken cryptocurrency exchange and published on Feb. 19, 85% of crypto holders in the U.S. are invested in at least one meme coin. That's a shocking number because it implies that the large majority of crypto investors are comfortable taking extreme risks.
But that's not all Kraken's survey found -- 29% of those same people said short-term gains were their main motivation for investing, and 76% said that the potential upsides justified the risks of an investment in these highly volatile and highly speculative assets. In a nutshell, roughly a third of the investors are, to put it bluntly, incorrectly oriented in terms of their strategy, seeking quick riches rather than sustainable portfolio growth. As long as that belief remains true, those meme coins could have plenty of upside, at least before they come crashing back down as they always do.
And, while it's true that it is technically possible for meme coins to skyrocket and deliver big returns to early holders who subsequently sell their tokens before the crash, that doesn't mean that investors are correct about their balance of risk and reward on average. Nor is it true that most will be able to time their sale correctly.
Still, the survey shows precisely why it's possible for assets like Dogecoin and Shiba Inu to go to the moon once in a while. When enough new money comes off the sidelines to take a gamble with long odds, the results can occasionally be impressive, even if it's impossible to predict when and why they'll happen. Crypto assets upstream from meme coin investments, Solana in particular, are also exposed to the same kind of skyrocketing.
Don't go out on a limb
You do not need to invest in meme coins simply because most other investors are doing it. Your results will likely be better if you stick with simply buying Solana, as most meme coin investing activity occurs on its blockchain, meaning that other investors will need to buy it first before they can gamble on those tokens.
Nonetheless, if you are like most other people in the cryptocurrency sector, per the survey, the safest, most logical way to approach your investments is not the one that you will end up doing thanks to your fear of missing out (FOMO) on the supposedly exhilarating returns of meme tokens. So you will need to plan around your own psychology to prevent your speculation from harming your financial future irreparably.
In other words, before investing in Dogecoin or Shiba Inu, commit to properly diversifying your portfolio with safer cryptocurrencies, as well as with stocks and bonds. Do your best to only buy meme coins when their prices are at their absolute lowest, when nobody else is interested in them. Only commit a small fraction of your portfolio's total value to buying them, and make sure that you buy them slowly over time to smooth out the price fluctuations that they tend to experience. Then, be sure to hold on to them for years, checking their price carefully so you can sell for gains when prices are higher.
If this process seems dubious, it's smarter to just buy and hold Solana or another major cryptocurrency; this is the same thing as saying you'll have a much easier and likely more profitable time by buying a real investment rather than buying a frivolity.
You won't need to babysit a real investment as much, although you will miss out on the rush from taking a large risk that every once in a while happens to result in large gains. But you probably will end up sleeping better at night.
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Alex Carchidi has positions in Solana. The Motley Fool has positions in and recommends Solana. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
