What Is Shitcoin?
Shitcoin describes cryptocurrencies that plummet in value due to failed investor interest and unmet expectations. These altcoins, created after Bitcoin's rise, are considered poor investments because they lack intrinsic value or purpose.
KEY TAKEAWAYS
A shitcoin is a cryptocurrency with little to no value or purpose and often fails to meet investor or creator expectations.
These digital currencies are typically characterized by short-term price surges followed by rapid declines.
The value of shitcoins is based largely on speculation rather than practical utility or demand in real-world transactions.
Shitcoins often attract investors seeking short-term gains, but their lack of value renders them poor investments.
Identifying genuine value in altcoins can be challenging due to the complexity of blockchain technology and the abundance of misleading information.
Understanding the Mechanics of Shitcoins
Interest in cryptocurrencies increased substantially since bitcoins were introduced in 2009. Their success has drawn in businesses looking to take advantage of blockchain technology to create their own altcoins, which are virtual assets that piggyback off the basic design of Bitcoin. Developers usually set a token limit, like Bitcoin's 21 million or Ether's 18 million per year.
A supply limit creates scarcity because investors know more tokens won't be available later. More tokens would theoretically dilute the value of their holdings, the same way a new stock issuance may reduce the value of a share of stock.
With the supply of an altcoin fixed, its value should depend on demand. But since most cryptocurrencies have limited practical use—buying and selling real-world goods and services using cryptocurrencies is not yet a common occurrence—their values are based on pure speculation. Therefore, a shitcoin is something people say is (or isn't) valuable simply because it exists.
IMPORTANT
Cryptocurrencies have limited, practical use and their values are based only on speculation.
Shitcoins are easy to identify because they follow a specific pattern. Although there may be some interest in a coin when it launches, its price remains relatively level. But the price increases exponentially over a short period of time as investors begin to jump on board. This is followed by a drop as investors sell off coins at peak prices for quick profits.
It is unlikely that the development and marketing of altcoins that will one day be considered shitcoins will slow down substantially while interest in cryptocurrencies remains high. Cryptocurrency aggregators show new coins constantly being added, often attracting unwary investors.1
Important Considerations for Evaluating Shitcoins
Because of the cryptocurrency market—with which investors may struggle to draw historical parallels—and because the underlying technology used to manage blockchains may not be well-understood by a large percentage of investors, there is ample room for abuse. It can be difficult to identify whether a cryptocurrency is viable or if it was created to bilk investors.
Assessing an altcoin's value requires a different method than evaluating traditional currencies. Altcoins are not backed by governments, meaning investors cannot look at gross domestic product (GDP) growth, debt levels, or inflation to determine whether an altcoin is undervalued or overvalued.
In general, cryptocurrencies—with very few exceptions—have any underlying value. This is even true for cryptocurrencies introduced by legitimate businesses. Many are hyped as solutions to existing issues but often fail to succeed.
Confusion over altcoin value is worsened by unreliable online information, often created to generate buzz.
Is Shitcoin a Good Investment?
While the term is generally used to refer to coins without value or purpose, there was a meme introduced via a whitepaper (in this case, it was called a "toiletpaper") by an imaginative and disgruntled cryptocurrency investor. With that said, if you can find a shitcoin on an exchange, it may not be a wise investment.2
Who Created Shitcoin?
Reddit user Jacob Martin created it and was the first to post it on a website. Jacob Martin "doxxed" himself in the toiletpaper he published ("doxxing" is internet slang for posting someone's identity in an otherwise anonymous platform).34 As for the term, it was adopted by the cryptocurrency community, but it remains unknown where it was first used.
Why Do People Invest in Shitcoins?
Some people invest in coins with no purpose or value, hoping they will be the next big winner or at least become popular enough to reward them with some earnings.
The Bottom Line
Shitcoins are cryptocurrencies that typically hold little to no value and often lack a clear or practical purpose. Their values are driven by speculation, leading to volatile price swings when investors seek short-term gains. It's crucial for investors to thoroughly research any cryptocurrency, especially altcoins, to assess their potential worth and inherent risks.
