Can you really gamble to win?

Mass retail interest in memecoins has returned.

Attracted by the possibility of lucrative profits over a short amount of time, speculators are pouring into a smorgasbord of low-cap memecoins in the hope of getting rich quick.

Let’s explore just how high risk, high reward memecoins are. We’re going to compare the returns of two opposing strategies over a bull run:

Buying $1,000 worth of quality cryptocurrencies;

Speculating $1,000 into memecoins.

For memecoins, we’ll look at three different strategies:

1. “All-in” — put $1,000 into a single memecoin.
2. “Diversified” — spread $1,000 across multiple memecoins.
3. “Saturated” — buy a little bit of every memecoin.

Without spoiling too much — it all comes down to the simple question:

How much of a gambler are you?

Buying & Holding Quality Cryptocurrencies

The safest cryptocurrencies are those that dominate their niche. They are the sort of cryptocurrencies one would be comfortable holding for years.

These include:

Bitcoin (BTC) — store of value & inflation hedge;

Ethereum (ETH)— leading smart contracts protocol;

Cardano (ADA)— leading ETH-competitor;

Polkadot (DOT) — ‘king of interoperability’ blockchain;

Chainlink (LINK) — leading oracle.

These are established projects with widely-accepted use cases and proven scalability. During a market cycle bull run every four years, these tokens are expected to 5–20x with high probability.

In other words, if you put $1,000 into these tokens, close your portfolio and come back after the bull run, there is an extremely high probability your $1,000 would have turned into $5,000 to $20,000.

This is our benchmark.

No trading needed. No regular checking of crypto prices. There is no more effortless way to multiply your money.

Okay, now onto the fun stuff.

Speculating into Memecoins

According to CoinMarketCap.com, there are currently 233 meme cryptos out of roughly 13,000 total cryptocurrencies. That is, less than 2% of cryptocurrencies are official meme tokens.

The vast majority of meme tokens fail. That is, you lose money investing in them, either because their prices spiral towards zero or they’re scams.

A small number ‘succeed’ and see their prices explode. That’s the psychological allure for the speculators!

The top two memecoins are Dogecoin (DOGE) and Shiba Inu (SHIB).

Shiba’s prices recently pumped 1000% in 3 weeks. Triggered by whale activity, the majority of naive retail traders then lost money after FOMO’ing in at sky-high prices. I discussed this at length on YouTube here.

I cannot stress this enough: buy during accumulation periods!

Don’t FOMO in after the pump has started — these are low probability trades, especially for memecoins which tend to crash and burn as hard as they had pumped.

For the rest of this article, I’ll assume you exercise good trading practices and buy into memecoins before their explosive rallies.

Now, for demo purposes, suppose there are 100 meme cryptocurrencies.

We’ll assume that 5 of them have the potential to explode 100x.

What about the other 95? You’ll likely lose money. Many will go to zero. Some will be rugpull scams.

Let’s now invest our $1,000 in three different ways and compare the outcomes.

Strategy 1 — $1,000 into 1 token

This is for those living on the edge. The “all-in” bet, where you put all your money into a single memecoin.

Here, you’ll strike big — a 100x return — if you choose one of the winning memecoins. But the chances of that not happening is enormous:

If you win, you win big. The maximum 10,000% return. There’s a 5% chance of this.

If you don’t win, you’ll probably lose it all.

This strategy is the epitome of high risk, high reward.

Okay, moving onto our second strategy.

Strategy 2— $1,000 across 10 tokens

This is more sensible — you’ll assemble a portfolio of memecoins by spreading $1,000 equally across 10 memecoins.

The logic here is, the more memecoins you place bets on, the higher the chances of hitting one of the five winners right?

That’s true. The chances of you hitting no winners and walking away with potentially nothing is lower now — roughly 60% instead of 95%.

There are two problems with this strategy:

1. There is still a substantial chance of walking away with nothing. That’s gambling.
2. Because you’re spreading yourself thinner, it’s now impossible to hit 100x returns. At best, you’ve placed $500 across all 5 winning memecoins (an extremely low probability mind you), which means a maximum ceiling of 50x returns instead of 100x (because you still placed $500 on losers).

The most likely scenario is if you struck any winners at all, you struck just 1 out of the 5. This would give you a total return of just $10,000 or 10x.

You might as well have HODL’ed bitcoin!

Okay, let’s move onto our final strategy.

Strategy 3— $1,000 across all tokens

Here, you’ll spread $1,000 across all 100 memecoins. We’ll place $10 into every single token.

This is the ‘safe’ strategy. Buy a little bit of every memecoin, so you don’t have to worry about which ones will pump and which ones don’t. Cover all your bases, right?

Indeed, you’ve now eliminated the possibility of walking away with nothing. You’re now guaranteed to hit a winner — in fact all 5 winners.

But the issue is you’ve now spread capital so thin that you’ve only got a total of $50 in those 5 winners, giving you a total return of $5,000 or 5x.

Again, you might as well HODL’ed bitcoin, ethereum and other quality cryptocurrencies! You’ll get a 5–20x return with a similar level of certainty.

In addition, there are extra risks with going to memecoin route.

Firstly, I’m assuming you’re watching for the pumps. Memecoin pumps tend to be violently quick, followed by a massive dump. Many do not pump again. You’ll need to babysit the charts closely every day.

Secondly, I’m assuming you can actually sell during the pump. Liquidity and platform issues on the Binance Smart Chain DEXs can be an issue during the huge spikes, resulting in missed transactions and slippage issues.

That’s a lot of effort and stress compared to just holding BTC, ETH, ADA, DOT, LINK etc in a wallet and going off to enjoy your day!

Final Words

The allure of memecoins is that the successful ones can turn ordinary people into millionaires pretty quick. That’s not a joke.

The issue is you need to gamble by betting most of your money on the few coins you believe to be winners. There is a high probability you will walk away with nothing.

If that’s too risky, you can spread capital across a portfolio of memecoins, but mathematically this erodes your maximum returns down to earthly levels.

If you decide to eliminate the walk-away-with-nothing risk by buying a little bit of every memecoin, then you will receive some gains with certainty — assuming you babysit the charts and exit on time — but these returns would be comparable (or worse) to HODL’ing quality cryptocurrencies like bitcoin and ethereum.

Ultimately, if you want to have a chance of hitting those sky-high returns and become a quick millionaire, you need to accept that there’s a high chance you’ll lose everything. So back to the original question:

How much of a gambler are you?

Have a great day.