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What are shitcoins?
Learn what shitcoins are, how they work and whether you should invest in them.
Key takeaways
- Shitcoins are high-risk cryptocurrencies with little to no utility.
- Check a project's whitepaper, team credentials, and tokenomics before investing to spot potential red flags.
- Never invest more than you can lose, take profits early, and diversify into other assets.
Shitcoins are cryptocurrencies with little practical use, weak fundamentals, or questionable long-term value.
While some are created as memes or quick cash-grabs, others may begin as promising projects before fading away.
Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific
provider, service or offering. It is not a recommendation to trade.
What is a shitcoin?
Shitcoin is a slang term used to describe cryptocurrencies that serve no discernible purpose.
Unlike Bitcoin or Ethereum, which serve defined network purposes, shitcoins often copy existing projects or emerge as memes with no roadmap or functionality.
Although the term is best used for coins that hold no value, it can also be attributed to any cryptocurrency based on personal opinion.
Finder survey: How many Australians at at different ages have lost cryptocurrency or had it stolen?
| Response | 75+ yrs | 65-74 yrs | 55-64 yrs | 45-54 yrs | 35-44 yrs | 25-34 yrs | 18-24 yrs |
|---|---|---|---|---|---|---|---|
| No I haven't | 1.92% | 6.79% | 20.13% | 20.35% | 38.55% | 36.17% | 18.63% |
| Through an incorrect transaction | 0.62% | 2.33% | 3.35% | 1.6% | 2.94% | ||
| Through a centralised exchange hack | 0.65% | 2.23% | 1.6% | 3.92% | |||
| Lost access to a wallet or private keys | 1.16% | 1.68% | 2.66% | 1.96% | |||
| Other | 0.58% | 1.68% | 1.06% | ||||
| Through a DeFi hack | 1.68% | 1.6% |
Source: Finder survey by Pure Profile of 1009 Australians, December 2023
How do shitcoins work?
Most shitcoins work on the same blockchain principles as legitimate cryptocurrencies. They have tokens, trading pairs, and sometimes even a whitepaper. However, their economics are often flawed.
This may be because they have:
- No utility: No underlying service or blockchain use case.
- Speculation-driven: Prices move purely on hype or social media influence.
- Inflated supply: Many shitcoins mint trillions of tokens, flooding the market.
- Pump-and-dump cycles: Early holders promote heavily, then sell once price spikes ("rug pulls").
Unlike Bitcoin (with a capped supply of 21 million) or Ethereum (which fuels DeFi apps), shitcoins depend solely on speculation. Once hype fades, liquidity vanishes.
What are the key signs of a shitcoin?
It is often easy to identify a shitcoin because many follow a specific pattern. When a shitcoin is first launched, the token may attract some interest, but its price remains relatively low. As interest peaks and investors jump in, prices spike high and fast. This is almost always followed by a nosedive in price. The sharp fall in price is caused by investors selling their coins to profit from short-term gains. This pump and dump process is often associated with shitcoins and can leave many investors stuck with worthless tokens.
Shitcoins usually have low market capitalisations (market cap). The low market cap makes it easy for a small number of investors to manipulate prices, raising them with very little effort.
The most obvious sign of a shitcoin is a lack of a well-defined function. Bitcoin was built for a decentralised payment network where financial transactions are secure, trustless and censorship resistant. Ether, the coin native to the Ethereum blockchain, is used to validate transactions and secure the network. Binance Coin, the token native to the Binance Exchange, is used to reduce fees on the Binance platform and power the associated Binance Chain blockchain. Shitcoins do not have such clearly-defined purposes.
Discerning a shitcoin is easier when looking into the background development and associated project (if one exists). Is the project a copy of an already-known cryptocurrency platform? Does the project have an associated whitepaper? Is the whitepaper copied from a different project? If there are contentious answers to any of these questions, the cryptocurrency could well be a shitcoin.
What research should you do before buying a cryptocurrency?
Although knowing the tell-tale signs of a shitcoin is important, knowing what to research before purchasing a cryptocurrency is just as important.
The following tips will help scrutinise any cryptocurrency project to determine whether it falls within the "shitcoin" category.
1. Thoroughly examine the project's whitepaper
When it comes to identifying shitcoins, a project's whitepaper is the most important resource.
The first thing you should look for is the availability of a whitepaper. If the cryptocurrency doesn't have a whitepaper, it is likely a shitcoin.
Second, look at how the whitepaper is written. It might seem trivial, but it is important that a whitepaper is written in flawless English. If you spot instances of low-quality English or numerous typos, you should question the legitimacy of the cryptocurrency. A high-quality cryptocurrency would invest in a well-written whitepaper.
Third, examine the promises made by the development team. Most people don't read the technical points of a project's whitepaper. Shitcoin creators know this and will, therefore, embellish the project's vision, roadmap and use cases. However, the underlying technology for achieving these proposals will never be explained. For instance, the whitepaper might promise that a project is "the next global payment system" but then fail to explain how that will be achieved.
Overuse of visuals is also another red flag. A whitepaper is intended to be the technical details behind a project. It is not supposed to be an easy read. When a whitepaper is overly visual and lacks technical solutions, you may want to be wary.
To help spot a terrible whitepaper, it is a good idea to become familiar with excellent examples. Solid whitepaper examples include Bitcoin, Ethereum and Cardano. Notice that these whitepapers contain the following:
- The project's vision.
- An overview of the problems the project aims to solve as well as the solutions the project will implement and why those solutions have been chosen.
- Details on the technical implementation.
- A credible roadmap for delivery.
- A specification of the associated cryptocurrency's initial coin offering (ICO).
- Technical information about the cryptocurrency's purpose, type, mechanism and tokenomics.
2. Look out for initial coin offering red flags
Initial coin offerings (ICOs) are a way for investors to gain early access to a cryptocurrency token. However, if an ICO offers a significant discount (more than 30%) for early investors, there is a risk that the cryptocurrency is a shitcoin. Allowing early investors to purchase coins at low prices gives them the opportunity to dump coins slightly above the ICO price and still make a profit. If a development team has faith in their cryptocurrency, there should be no need for a strong incentive to drive token sales.
Even if tokens are not sold directly after an ICO, offering a cryptocurrency at a very low price can result in a large proportion of tokens sitting in the hands of a few people. This is a guaranteed way to bring governance problems and political centralisation to a project.
Another ICO red flag is the lack of a product, demo or code. Although ICO's ask you to put your trust in the promise or vision of a development team, it is better to trust a team that shows what they are doing instead of one that only offers a whitepaper. Even for those not interested in tech, it is worth looking on the project's GitHub repository to see if it's active. If there are any demo products, they should be evaluated before any investment is made.
Researching the project's team members can also prove to be invaluable. What are their credentials and experience? If they have been involved in other crypto projects that have failed, it would instantly be cause for concern. Do they have a public social media presence? Inactive profiles are not encouraging. Are there any pseudonymous names like Satoshi Nakamoto used? The leadership team behind a project should not be anonymous. There is no reason for a project team to be anonymous unless they have something to hide.
Our expert says
"Shitcoins may seem enticing when they first launch but always be wary of the hype. Behind the slick website and marketing, these tokens may serve little to no purpose beyond driving profits to their creators. Always check the white papers and understand the fundamentals before investing in a new coin or token."
Are shitcoins a good investment?
Shitcoins are generally terrible investments. They require huge risk and very rarely offer rewards. The majority follow pump and dump schemes where only a few "insiders" really understand the price dynamics. With no real value, after a pump and dump scheme, other investors are left with worthless cryptocurrencies. There is no denying that small-cap altcoins can produce high returns, but only if an investor gets extremely lucky and sells at the right time. There is a high chance an investor can lose all of their initial investment.
Where to buy shitcoins
As mentioned previously, shitcoins are extremely subjective. Any altcoin can be declared a "shitcoin"; therefore, it is difficult to give specific guidelines for where they can be purchased.
Most hold a small market capitalisation and are, therefore, not as common on larger cryptocurrency exchanges such as Binance or Coinbase. Exchanges such as these require coins to be officially listed, which means the project undergoes a thorough vetting process. Very few shitcoins make it that far.
Alternatively, lower market cap coins may be acquired through a decentralised exchange (DEX), where there are no restrictions on what coins can be listed.
Well-known shitcoins
Although subjective, here are some of the more well-known shitcoins within the cryptocurrency market:
- Dogecoin (DOGE). This is a meme-based cryptocurrency that was designed around a comical picture of a Shiba Inu dog called Doge. Much of the coin's success has been the result of influencer encouragement and hype.
- Shibu Inu (SHIB). Following on from Dogecoin's success, SHIB was developed as a token simply named after the Shiba Inu dog breed. It serves no purpose and is not associated with any blockchain or decentralised application. The maximum supply of tokens was set at 1 quadrillion.
- Safemoon (SAFEMOON). Safemoon is a ponzi-inspired coin that punishes holders for selling. Holders are charged an additional fee by the network when they sell, which is distributed to other holders.
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How we picked theseFinal word
Shitcoins are risky investments that most cryptocurrency enthusiasts should steer clear of. For investors with large risk appetites, shitcoins may present an opportunity to make large profits. When investing in shitcoins, use the tips we have discussed in this article and ensure you fully understand the short-term and long-term potential of the coins. Once comfortable with the risks, invest small amounts and take profits regularly to avoid making a loss.
FAQ
Sources
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
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