Shitcoins are altcoins that have no real-life use cases, have no identifiable value, and eventually diminish in price until they become worthless.
No one is quite sure how the term "shitcoins" or crapcoins entered into the crypto market vocabulary. There is evidence to suggest that the word "shitcoin" was first used in a Reddit post in November 2010. Incidentally, that post correctly predicted that the success of Bitcoin would create several spin-off shitcoins, most of which would fade away like the dot com companies of the late 1990s.
However, this term was brought to general public knowledge via the 2018 testimony provided to the US Senate's Committee on Banking by Noriel Roubini, an American Economist. This was at the height of the crypto market bust of 2018, and Roubini had made use of the word to vilify Bitcoin and other cryptocurrencies, as well as the distributed ledger technology on which cryptocurrencies ran.
Shitcoins usually pervade the cryptocurrency market in a time of boom. There were many such shitcoins in the market in 2016 and 2017, at the height of the first cryptocurrency market boom. Several of these were launched as ICOs at the time. The second cryptocurrency market boom of late 2020/2021 has seen a re-emergence of many shitcoins. This time around, they have not come as ICOs, but as the new fad of DeFi projects and non-fungible tokens (NFT).
A shitcoin typically has flawed fundamentals. The emphasis is usually on sugar-coating the project and selling the tokens using aggressive marketing techniques to gullible investors who know very little about how to sift out shitcoins from altcoins with real value.
Investors in shitcoins are typically lured by some of the famous altcoin plays of all time, such as that of Ethereum, Dogecoin, and a few others, whose rise turned hundreds of dollars into millions of dollars. Shitcoin promoters typically market their tokens as the next big thing in the crypto market. But without a use case and no partnerships that promote the adoption of these tokens, the shitcoins eventually come to nothing and those lured by the sweet talk eventually lose all their money.
Categories of Shitcoins
This section attempts to categorize shitcoins, as not all of them are created alike. So what are the categories of shitcoins in the market?
1) The Scam Shitcoins
Many shitcoins have been created as a new way to scam the investing public of their hard-earned Bitcoin and Ethereum tokens since these projects typically require the traders to invest using these high-end, premium cryptocurrencies. In this category are some of the ICOs of 2016 and 2017 in which promoters ran off with the money collected, built mansions, paid for expensive holidays, and did some other nefarious stuff. You have shitcoins which were pump and dump schemes, exit scams, phishing scams meant to capture sensitive details of users for nefarious purposes, and crypto Ponzi schemes. The sole aim of the promoters of these scam shitcoins was to fraudulently benefit from those who subscribe to the project’s tokens.
2) The Unworkable Shitcoins
Ironically, not all shitcoins were initially destined to end up as scrap. Some were created with very good intentions and with lots of potentials. However, they faltered because they were either too ahead of their time, got snagged by regulators, or got outmuscled by the competition. Some also went down the drain after new altcoins came on board with better use case propositions, thus consigning these shitcoins to the relics of altcoin history. This category of shitcoins is what we call the unworkable shitcoins. Many traders end up having to hold on to these for years, therefore losing the time benefit of money. Who would want to have to hold a shitcoin that is stuck in a price for years when other altcoins are hitting the moon? It can be very frustrating.
Why Do Some Traders Go and Buy Shitcoins?
There are three principal reasons why traders love to buy shitcoins:
- Prospects for astronomical returns
- Greed
- Price sensitivity
How do these factors play out in decisions to purchase shitcoins?
A) Growth Prospects
A lot of traders love to buy shitcoins because they appear to hold the prospect of taking those who buy them from poverty to extreme wealth. As of December 2020, Doge was trading at $0.004 (four-hundredths of a cent). At its peak a few weeks ago, Dogecoin had climbed 100-fold. If you had $4,000 in Dogecoin at the start of 2021, your money would be worth $400,000 by mid-April 2021.
The prospects for such astronomical returns do not come from the major crypto coins. They lie in the altcoins. A move of Bitcoin from $20,000 to $60,000 only represents a gain of 400%. Dogecoin’s price move within the same period represents a price gain of 9,900%!
These kinds of spectacular returns are what all traders who buy shitcoins hope for. So they go looking for crypto coins which they believe have the potential for such returns. These beliefs usually come from the contents of the glamorous white papers that promise the moon for investors. Only when these investors get in do they realize that they have been sold a bunch of crappy coins with no value and no prospect for any appreciation.
B) Greed
Can greed be considered as one of the motivations for buying shitcoins? We would answer in the affirmative because the cryptos and various financial assets that hold time-tested value do not show such astronomical increases. Only a few altcoins ever go to such heights. For one altcoin which goes to the moon, there are probably a hundred or more which will crash and burn. Even the example of Dogecoin cited here has been roundly criticized in many quarters as a coin riding only on the emotions created by Doge lover Elon Musk, who as of December 2020 was on the verge of becoming the world’s richest man. Without Elon Musk’s famous tweets, would Doge have become anything of note? It is very doubtful.
C) Price Sensitivity
Altcoins are generally priced very cheaply, and price sensitivity is a reason why traders love to buy shitcoins. For instance, an altcoin that is priced at 1 cent per token, allows for an investment of $1,000 to allocate to the investor a total of 100,000 tokens. A similar sum can only buy 0.5 tokens of Ethereum at current prices. Some traders just love the idea of holding such multiplicities of tokens. When asked why they have made such a purpose, they ask you things like: “what if this altcoin becomes $1 per token tomorrow? I would have made $100,000…”.
This kind of mindset is based on price sensitivity, and this becomes a selection metric in the minds of such investors, rather than a proper vetting of the token based on sound fundamental analysis.
How to Recognize Shitcoins
To avoid investing in these crappy coins, it is important to come up with a vetting system that lets you know instantly whether you are investing in a coin that will go nowhere, or whether you are going to profit from investing in low-priced altcoins. In buying an altcoin that has reduced chances of becoming a shitcoin, look out for the following:
- Is there an existing market for the product/service offered by the altcoin’s project?
- Is there a functional use case for the project?
- What is the size of the market that the token seeks to penetrate?
- Who are the backers of the project in terms of promoters, financiers and developers?
Altcoins that already have an existing market waiting to be served with an innovative solution have better chances of success. This is why crypto projects which are currently involved in markets such as the crypto lending market and the gaming industry are doing very well.
You also need to look at the use cases. Ripple came on board to stop the delays in cross-border remittances. Ethereum and Tron have evolved into applications upon which decentralized finance (DeFi) projects are being developed. The area of DeFi is so large that it is accommodating several projects that address the existing needs in the world of finance. These are all markets that are worth billions of dollars and have enough space for new players.
These are the kinds of projects where traders should put their money. If an altcoin does not satisfy any of these parameters, it is destined to become a shitcoin and will eventually end up in the doldrums.
