The Big Money In Memecoins Is Made On The Way Down
Spoiler: You can become a millionaire during the pump AND the dump.
If you’re like most retail crypto traders, you’re probably on a frantic lookout for the next 1000x memecoin.
This can be a very difficult and risky mission.
You can buy a token that goes nowhere, you can get caught in a scam or a rug pull, or you can buy toward the top and watch your money evaporate as the whales start selling.
You might not be aware, but there’s an easier way to make a fortune with memecoins.
What is the one thing all exploding memecoins have in common?
Sooner or later, they dump in the same proportion as they have pumped.
So why not short them on the way down?
If you do want to learn how to spot high-potential memecoins before they skyrocket, check out this post.
How to short memecoins?
By default, all centralized and decentralized crypto exchanges are spot exchanges. This means they let you buy a token with fiat (like USD or EUR), or convert one token to another (like USDT to PEPE).
When you trade on a spot exchange, you can only make a profit when the price of an asset rises. If you buy PEPE and its price goes up, you make money, if it goes down, you lose money. It’s as simple as that.
But most centralized exchanges also offer derivatives trading.
If you buy 1 BTC on a spot exchange, you own that Bitcoin and you can transfer it out of the platform where you bought it.
With derivates, on the other hand, you’re not buying anything. You’re only speculating on the future price of a particular asset by trading its derivate. Which means you can make money by speculating the price will rise (longing) or fall (shorting).
On a side note, there is such a thing as perpetual DEXs (decentralized exchanges), but they are a very new addition to the DeFi world, and they mostly only offer large-cap tokens.
To long and short memecoins, you’ll have to use a centralized exchange.
The easiest way to see perpetual exchanges on which a token is listed is on CoinMarketCap by clicking on Markets and Perpetual.
One of the best exchanges for perpetual memecoin trading is MEXC, simply because it lists many memecoin perpetual contracts that most other exchanges don’t.
To trade derivates on MEXC, you need to click on USDT-M Perpetual Futures from its website. From the list of coins, you can click on MEME and you will see all the hottest memecoins listed as futures contracts.
On the right, you can open a long position if you think the price will go up, or a short position if you think the price will decrease. On the Close tab, you can close your open positions.
After a few days of aggressive pumping, every memecoin will do a significant correction. For most of them, it won’t even be a correction, but the beginning of a major dump adding a couple of zeros to the price.
Experienced traders use this knowledge to short memecoins on the way down by using futures contracts on platforms like MEXC.
To increase their profit without adding more capital to their position, they often also use leverage.
What is leverage and how to use it?
When you trade derivatives, leverage is the most important thing to take into consideration.
Leverage allows you to increase your exposure to the market without having to provide all of the required capital.
How does this work?
When you use leverage, it means you borrow capital to trade financial assets, such as cryptocurrencies. It increases your buying or selling power, so you can trade with more capital than you have in your wallet.
The amount of leverage shows how many times your initial capital is multiplied. For example, if you have $100 in your exchange account but want to open a position worth $1,000, you will need to use a leverage of 10x.
Many crypto exchanges will offer a leverage of up to 10x, 20x, or even 100x which can be tempting for newbie traders. But using such high leverages can very quickly result in your position being liquidated and you losing all your capital.
The higher the leverage, the smaller your volatility tolerance - if your leverage is too high and the pair is too volatile, even a very small price movement can lead to huge losses.
To sum up, using leverage when trading allows you to open bigger positions and trade with borrowed capital. But using high leverage is very risky. You should use proper risk management to avoid losing your capital.
Zooming out
Average retail traders will try to make money by buying tokens they think will outperform based on their analysis. But most of them don’t consider other powerful opportunities to make big profits.
In current market conditions where the altcoin season is far on the horizon, Bitcoin is going through troubled times, and macroeconomic data is sending mixed signals, there aren’t many strong reasons to be bullish on most altcoins.
Spotting short opportunities and using reasonable leverage can actually be less risky and more lucrative than investing in a potential “100x” altcoin.
Memecoins offer perfect shorting opportunities because, in an uncertain world of crypto trading, there are very few guarantees. But a memecoin’s tumbling from the sky is definitely one of them.
PS: If you want to learn how to make a consistent profit from the Metaverse in 2023 and beyond, check out my free guide How To Make Your First $1000 In The Metaverse.
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Disclaimer: This content is for educational purposes only and should not be considered as financial or any other advice. Always do your own due diligence before investing your hard-earned money.