If you look up the word “meme” in the dictionary, you’ll find it defined as a humorous image, video, or piece of text that is copied, usually with slight variations, and rapidly spread by internet users. In the world of cryptocurrency, meme coins are the digital embodiment of this definition—cryptocurrencies inspired by memes and internet jokes.
But what exactly are meme coins, and should you consider investing in them? While some have skyrocketed to the top ranks by market cap, it’s crucial for potential investors to recognize that most meme coins offer little inherent value, and some are even outright scams.
What Are Meme Coins?
Meme coins are cryptocurrencies created as a lighthearted joke, often with no serious intent behind them. Despite their humorous origins, some meme coins have ballooned in value, amassed multibillion-dollar market caps, and even garnered celebrity endorsements. At first glance, these characteristics might suggest that meme coins have some underlying utility or value. However, the reality is that nearly all of them lack fundamental value or unique use cases.
Instead, the appeal of meme coins lies in their community and entertainment value. For many crypto enthusiasts, buying meme coins is about being part of a viral moment or simply enjoying the speculative thrill. As Bryan Hernandez, co-founder of trading and investment platform Structure.fi, explains, “Meme coins are designed like any other cryptocurrency, like Bitcoin or Ethereum. The difference is their existence tends to be centered around a viral moment or funny idea, and their value depends largely on how much momentum that concept can generate.”
The Original Meme Coin: Dogecoin
The original and most well-known meme coin is Dogecoin (DOGE). Created in 2013 by software engineers Billy Markus and Jackson Palmer, Dogecoin was inspired by the popular “Doge” meme featuring a Shiba Inu dog. Markus and Palmer created Dogecoin as a parody of Bitcoin, with the name “doge” intentionally misspelled to highlight the absurdity of the concept.
Despite its origins as a joke, Dogecoin quickly gained a loyal following, becoming a cultural phenomenon in the crypto world. The Dogecoin community has been known for its charitable efforts, such as raising $30,000 to help the Jamaican bobsleigh team attend the 2014 Winter Olympics. These actions, combined with endorsements from high-profile figures like Tesla CEO Elon Musk, have propelled Dogecoin to new heights.
Musk’s promotion of Dogecoin has been particularly influential, with his tweets and public endorsements driving the coin’s price to an all-time high market cap of $88 billion in May 2021. However, when celebrity endorsements wane, so does the coin’s value. Today, Dogecoin’s market cap is a fraction of what it once was, reflecting the volatility inherent in meme coins.
Other Popular Meme Coins
Following Dogecoin’s success, over 200 meme coins have been created, with many trying to replicate its viral appeal. Shiba Inu (SHIB), often dubbed the “Dogecoin killer,” is one such example. Launched two years ago, SHIB mimics Dogecoin’s branding with its own Shiba Inu mascot and quickly rose to a market cap of $41 billion in October 2021.
Despite their initial success, meme coins are highly susceptible to market downturns. Dogecoin is down 60% in 2022, and Shiba Inu has fallen 64%. Many smaller meme coins have fared even worse, with some plummeting to zero and being abandoned altogether.
How Do Meme Coins Work?
Meme coins are remarkably easy to create due to the open-source nature of blockchain technology. Creators can simply “fork” existing cryptocurrencies—essentially copying and pasting the underlying code—and launch their own coin with minimal changes, such as a new name or logo. As Tauhid Zauman, an associate professor at Yale School of Management, points out, “A meme coin is just a cryptocurrency, so they can be created easily with a few lines of code.”
Once created, meme coins are often promoted heavily on social media to generate hype and drive up their price. The hope is that the coin will attract a strong community, leading to continued price increases. However, this hype-driven approach makes meme coins extremely volatile and risky investments.
Should You Invest In Meme Coins?
For every success story like Dogecoin, there are countless meme coins that have left investors deep in the red. Even Dogecoin has fallen 91% from its all-time high, and Shiba Inu is down 84%. Despite this, both still maintain substantial market caps of $8.7 billion and $6.5 billion, respectively.
One of the key differences between meme coins and more established cryptocurrencies like Bitcoin is the supply structure. Bitcoin is capped at 21 million coins, creating a sense of scarcity. In contrast, meme coins often have a high or unlimited supply. Dogecoin, for example, has over 135.5 billion coins in circulation, with approximately 10,000 DOGE mined every minute. Shiba Inu’s supply is even more staggering, with over 590 trillion coins in circulation.
Given their speculative nature, meme coins should be approached with caution. While it’s possible to make money with meme coins, the odds are often stacked against investors. As Nick Saponaro, CEO of blockchain startup The Divi Project, advises, “Meme coins should be considered a dice-roll, and those putting their money into these speculative assets should do so with the assumption that they will lose everything they invest.”
Are Meme Coins Safe?
Despite their lighthearted branding, meme coins can have a dark side. Prices are extremely volatile, and many meme coins have seen their value drop 99% or even to zero in the current bear market. Additionally, some meme coin creators have been accused of manipulating prices or even running outright scams.
Another concern is the concentration of ownership. A significant portion of meme coins is often held by a small group of people, which can lead to market manipulation. For instance, 48% of Dogecoin is controlled by just seven wallets, while 69% of Shiba Inu is concentrated among 15 wallets. Such high concentrations of ownership pose risks, as large holders can cause significant price fluctuations when they decide to sell.
Conclusion
While meme coins can offer exciting opportunities and the chance to be part of viral trends, they come with significant risks. The volatility, lack of intrinsic value, and potential for manipulation make them a gamble rather than a sound investment. For those who do choose to invest in meme coins, it’s essential to do so with the understanding that the value of these assets can plummet just as quickly as they rise. In the unpredictable world of crypto, it’s always wise to proceed with caution.
