Meme coins are devoid of fundamentals. Meme coins were not designed with a particular use or inherent value. They are more of a community-driven phenomenon, a form of expression for millennials and the Gen Z generation.
What are meme coins?
Meme coins are cryptocurrencies inspired by memes or jokes on the Internet and social media. The first meme coin created was Dogecoin (DOGE). Launched in 2013 as a parody, DOGE was inspired by the popular Doge meme of a Japanese Shiba Inu dog.
Meme coins tend to be highly volatile. They are mainly community-driven and can gain popularity overnight due to online community endorsements and FOMO. Still, their price can also slump unexpectedly when traders turn their attention to the next meme coin.
Another characteristic of meme coins is that they often have a vast or unlimited supply. For example, Shiba Inu (SHIB) has a total supply of 1 quadrillion tokens, while DOGE has no maximum supply, and over 100 billion tokens are already in circulation. As meme tokens generally do not have a coin-burning mechanism, the considerable supply explains their relatively low prices. With just USD 1, you can buy millions of meme tokens.
What Makes Meme Unique?
Perhaps MEME’s most recognizable unique feature is its lack of utility — it exists purely for investors to perform classic DeFi activities, and there is no project behind it to give it innate worth.
However, as with any meme, its popularity has become viral, and interaction has only increased. Intrinsic value, as such, is not a genuine consideration for investors.
The appeal of such a satirical project is likely heightened for DeFi investors who have grown used to earning passive income from tokens via yield farming and liquidity mining, regardless of what the tokens themselves are used for.
As such, MEME does not exist to turn a profit for its creator based on its existence and could disintegrate at any moment based purely on traders’ whims.
Why are meme coins so popular?
While it’s hard to define specific reasons, some say that during the COVID-19 pandemic, the crypto market grew as retail investors wanted to hedge against inflation. Meme coins also boomed amidst the hype, growing in market capitalization and variety.
It all started after the “meme stock” saga of GameStop (GME) and AMC Entertainment (AMC) in late 2020, where the Reddit community pumped up the prices of these shares to as much as 100 times in a few months. In January 2021, a Reddit group joked about pumping up the price of DOGE to create a crypto equivalent of GME. The trend caught on, and along with the influence of Tesla CEO Elon Musk’s tweets, DOGE price rallied. Dogecoin reached a new all-time high of USD 0.73, increasing over 2,000% in five days.
However, in May 2021, Elon Musk joked about DOGE publicly on TV, and many say it was the cause of the next price drop. Several traders then turned to other meme coins on the market, such as the “Dogecoin killer” SHIB. At the same time, retail investors were FOMOing into meme coins hoping to become millionaires overnight, sparking yet another meme coin rally.
Another reason retail investors find meme coins attractive is that they typically only cost a few cents or even a fraction of a cent. Technically, the low price doesn’t mean much because these coins have huge supplies. With just a few dollars, traders can get thousands or even millions of DOGE, SHIB, or Akita Inu (AKITA) tokens. Still, holding millions of a specific meme coin feels different than owning a fraction of ETH or BTC.
Apart from the potential profits, the meme coin frenzy is also driven by their respective community sentiments. As mentioned, meme coins are inspired by popular Internet memes, intended to be fun, and sometimes considered an “insider joke” for a community.
Buying meme coins, in a way, is showing support for their respective community. Following the GME stock market saga, meme coin traders inspired by the Reddit group SatoshiStreetBets started a “David vs. Goliath” battle to bet against the mainstream cryptocurrencies. The crypto market in 2021 was therefore flooded with community-driven meme coins.
Where to invest in meme coins
Meme coins might have seen exponential growth in 2021, but like all cryptocurrencies, trading and investing in meme coins carries high financial risk.
First of all, the tokenomics of meme coins can be concerning. Take Bitcoin as an example. It has its blockchain, a well-written whitepaper, an established ecosystem, and a deflationary nature. We are seeing more institutional adoption of bitcoin in recent years as well.
The collective jokes of the community often define their ecosystem, use cases, and fundamentals. Compared to BTC, most meme coins are inflationary with no maximum supply. Only a few meme coins were built on the technology of major cryptocurrencies. For example, DOGE’s technology was derived from Litecoin (LTC), and SHIB was built on the Ethereum blockchain.
Another potential risk is that meme coins are heavily community-driven and are more speculative than the more prominent market capitalization cryptocurrencies. This volatility constantly leads to unexpected pumps and dumps.
The lifecycle of meme coins is generally short-lived. Their prices can rocket thousands of times from celebrity shilling or FOMO or crash unexpectedly when the community decides to move on to the next meme coin.
As the meme coin market grows, you should know that there might be projects taking advantage of the hype to scam traders. For example, Squid Game (SQUID), a meme coin inspired by the popular Netflix show, surged over 86,000% in a week.
However, the development team rug-pulled suddenly and caused the price to plummet by 99%. What’s worse is that holders were not allowed to sell their SQUID tokens. Therefore, you should always be careful and DYOR before trading or investing in meme coins.
Market Position
According to CoinGecko, Dogecoin, which originated in 2013 as a joke, ranks No. 10 with a market value of over $35 billion. It is currently trading at around 27 cents. At the same time, rival token Shiba Inu, which was started in 2020 by an anonymous person known as ‘Ryoshi’ to poke fun at Dogecoin, ranks No.9 with over $38 billion. Also, Shiba Inu (the supporting community calls it the “Dogecoin killer”) hit an all-time high of $0.00008616 per token on October 26, 2021.
How Are Meme Coins Different From Mainstream Cryptocurrencies?
Mainstream cryptocurrencies such as Bitcoin have been created with specific technology to boost trading and transaction in the crypto market. In contrast, meme coins were not designed with a particular use or inherent value. “Meme coins are devoid of fundamentals. They are more of a community-driven phenomenon, a form of expression for millennials and the Gen Z generation. Meme coin investing isn’t bereft of associated risks and rewards. If you will, it has all the bells and whistles of reckless gambling. The recent boom and bust of Squid Games token is a testament to this fact,” says Sharat Chandra, a blockchain and emerging tech evangelist.
Volatile Nature
Meme coins are highly community-driven. Their performance and fame are mostly linked to social media support and hype created by influencers. For example, billionaire Elon Musk, CEO of SpaceX and Tesla, often tweets about different cryptocurrencies and, in doing so, has seemingly impacted their prices. Volatility is always a significant concern in cryptocurrency, and these meme coins are even more volatile than mainstream crypto tokens.
“Though the Shiba Inu token ecosystem, based on Ethereum, enables creators through NFT (non-fungible token) art incubators, a Shibaswap, a decentralized exchange, is also in the works. It’s too early to comment on the utility and promise of these meme coins. Dogecoin mania is driven entirely by Musk’s whims and fancies. Shiba Inu is touted as the ‘Dogecoin Killer’ by Shiba Army fans. The price duel between these two dog-themed coins is nothing more than a fun spectacle for retail investors in this game just for fun,” says Chandra.
Are meme coins here to stay? No one can say because they might become mainstream or die a sudden death as soon as another spectacle catches everyone’s fancy.
How to safely invest in meme coins
There are now over 250 meme coins, all vying for the attention of crypto investors. A hundred of them contain the word “inu” in their name. While many may look legitimate, most meme-inspired cryptocurrencies are simply scam projects to capitalize on the growing meme coin trend. You can reduce the risks involved by ensuring that the project is not prone torug pull scams.
A rug pull occurs for those unfamiliar with the term when the development teams suddenly sell off all their coins after driving the prices up. Investors are the ones with the rug pulled out from under them, leaving them flat broke as the price of that coin falls abruptly to zero. Squid token and snow dog are two of the most recent examples of meme coins that ended in an alleged rug pull.
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