A coin with no obvious potential value or usage.
What Is a Shitcoin?
A shitcoin is a cryptocurrency with zero or close to zero value and no utility. The term shitcoin is used in a pejorative way to refer to altcoins that try to gain benefit from the success of other cryptocurrencies without offering value on their own.
A shitcoin is often created with no intention to have utility besides speculation on a rising token price. Many shitcoins do not hide the fact that they have no intrinsic value and even try to play on the notion of being a bad investment. As such, they are considered extremely risky investments since they can yield outsized gains but have no fundamental value and can lose all of their value in a bear market.
How Do Shitcoins Work?
With the introduction of Bitcoin, the interest in cryptocurrency exploded, and with it, the supply of alternative cryptocurrencies. Many businesses are looking to use blockchain technology to create their own cryptocurrency and ride the coattails of Bitcoin’s success. Although Bitcoin has a fixed supply of 21 million coins, the same is not the case for most other cryptocurrencies.
However, without the scarcity imposed by a fixed supply cap, investors tend to trust new cryptocurrencies less than they do, for example, Bitcoin. Since a larger, and potentially unlimited, supply dilutes the value of an investor’s existing holdings, the price of a token with a big supply is inevitably going to be lower. A rising token price must be driven by demand.
What Increase a Shitcoin’s Price?
The demand for cryptocurrency is driven by many different factors. One important factor is utility. The more utility the coin yields, the higher the demand for it is going to be. For instance, Bitcoin is perceived as a good store of value and a medium of exchange. Ethereum aims to enable the creation of powerful DApps. Other cryptocurrencies aim to build a utility for DeFi purposes. Yet, shitcoins defy all of these value pitches and implicitly, or explicitly, offer no utility whatsoever.
A shitcoin is generally launched in a bull market when the investor sentiment is at its highest. At the peak of a bull market, investors care less about utility and fundamental value and more about short-term gains and leveraging their capital. That is the perfect time for a shitcoin to hit the market and generate as much traction as possible.
How Are Shitcoins Marketed?
Shitcoins are marketed in two ways. Either they explicitly promise outsized gains that are not realistically achievable and will never materialize. Alternatively, some shitcoins are open about the fact they do not offer any utility but try to build a community of enthusiastic followers that like the coin and will drive up the price in the process. Either approach relies heavily on the marketing of shitcoins on social media and through influencers.
To generate as much publicity in a short time frame as possible, the founders of shitcoins hire professional crypto influencers to shill their coins. These influencers have massive followings on social media channels that are popular in the cryptocurrency space, such as Twitter and YouTube. Their task is to hype the launch of a shitcoin as much as possible to drive attention and engagement and entice as many people as possible to buy. Shills always charge a fee for their services and often receive a share of the token supply to align their incentives with that of the team launching the coin.
Other marketing techniques used for shitcoins are giveaways, airdrops and token burns. Through a combination of these, shitcoins try to create a sense of scarcity while driving up the demand for the coin. However, since most of these tokens have a freakishly high token supply, in the trillions or even quadrillions, the only purpose of these techniques is to create a sense of FOMO.
The teams behind them are often anonymous. Some of these coins reserve a significant allocation for the team, while others practice a “fair launch,” without an allocation for the founders. However, most shitcoins are implicit or explicit pump-and-dump schemes. Their only purpose is speculation, and they aim to increase their token price as much as possible to yield more profit. In the worst-case scenario, the projects behind them turn out to be rug pulls specifically designed to enrich their founders.
Some Popular Shitcoins
Some shitcoins though have managed to build a community of passionate followers that works on building real utility for the coin.
One of the earliest shitcoins was Dogecoin, a dog-themed memecoin that was founded on the back of Shiba Inu memes. Though Dogecoin initially was founded by several people, it has since become a decentralized cryptocurrency.
Another popular shitcoin is Shiba Inu, which is a copy of Dogecoin and aims to dethrone it as the most popular memecoin. Initially founded by an anonymous developer and meant as a joke, Shiba Inu has since tried to pivot to become a more “serious” cryptocurrency by integrating DeFi features.
Luna Classic is an example of a coin that has inadvertently become a shitcoin. After the collapse of LUNA and its algorithmic stablecoin, the token price went to fractions of a cent as the supply of the token hyperinflated. The Terra blockchain was forked and the old LUNA token became Luna Classic, a token with no underlying utility and no project building on it. However, at the time of writing, Luna Classic still has a market cap of over one billion.