What Is Shitcoin?

What Is Shitcoin?

The term shitcoin refers to a cryptocurrency with little to no value or no immediate, discernible purpose. The word is a pejorative term often used to describe altcoins or cryptocurrencies developed after Bitcoin became popular.

The diminished value of a shitcoin is often due to failed investor interest because it failed to meet investor or creator expectations or didn't deliver on the promises made by the developers. As such, these currencies are considered to be bad investments.

How Shitcoins Work

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 typically announce how many tokens are ultimately made available—the supply of bitcoin is capped at 21 million, while ether supplies are capped at 18 million per year.

Setting a supply limit creates scarcity, as investors understand that additional tokens will not be created after a certain point. 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.

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 nosedive caused by investors who dump their coins at critical price points to capitalize on short-term gains.

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. A quick look at cryptocurrency aggregators reveals that coins are added all the time, attempting to attract capital from unwary investors.

Special Considerations

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.

Evaluating why an altcoin is valued at a specific price requires a different approach than valuating 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. Most are advertised and hyped up as a way the company will address an existing concern, but many of these fail to take off.

Adding to the confusion of whether an altcoin is actually valuable is that most information about altcoins is found on the general internet, where it can be difficult to pin down whether the information is accurate or simply manufactured in order to create buzz.

The Bottom Line

According to most cryptocurrency fans, a shitcoin is a cryptocurrency that has lost all of its value, doesn't have any value, or has no chance of gaining any market share because it is worthless or without purpose.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency or Shitcoin.