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Main topics 

  • Meme coins are meme-inspired cryptocurrencies that tend to be more volatile than major cryptocurrencies such as bitcoin (BTC) and ether (ETH). 

  • Meme coins often gain popularity due to their low prices, community-driven nature, active marketing through social media, and endorsements from public figures.

  • Meme coins present considerable risks due to their often inflationary token economics, high volatility and high potential for rug pull scams.

Introduction

Meme coins are an important part of the cryptocurrency market and are known for their fast and unpredictable price movements. They are often inspired by internet memes and jokes, gaining popularity through social media and online communities. In this article, we will learn what meme coins are, why they have gained so much popularity, and the potential risks associated with them.

What are Meme Coins?

Meme coins are cryptocurrencies inspired by memes or jokes from the internet and social media. Dogecoin (DOGE) was the first meme coin. Launched in 2013 as a parody, DOGE was inspired by the popular Doge meme, a Japanese Shiba Inu dog named Kabosu.

Meme coins tend to be very volatile. They are primarily community-driven and can gain popularity overnight depending on online community behavior and FOMO (fear of missing out). Still, the price can also drop unexpectedly when traders turn their attention to new meme coins.

Another typical characteristic of meme coins is their large or unlimited supply. For example, Shiba Inu (SHIB) has a total supply of 1 quadrillion tokens, while DOGE does not have a maximum supply. As meme tokens generally do not have coin burning mechanisms, supply quantity explains their relatively low prices.

During the Covid-19 pandemic, the cryptocurrency market boomed as retail investors looked for ways to protect themselves against inflation. Amid the buzz, meme coins have grown, both in market capitalization and variety. The phenomenon gained strength after the "meme stock" saga involving GameStop (GME) and AMC Entertainment (AMC), where the Reddit community considerably boosted the prices of these assets. 

Inspired by this movement, people started joking about inflating the price of Dogecoin (DOGE) to create a crypto equivalent version of GME. This trend, along with endorsements from public figures like Tesla CEO Elon Musk, has led to a significant rise in the price of DOGE. 

The excitement around meme coins was fueled further when traders began exploring other meme coins like Shiba Inu (SHIB) in hopes of replicating DOGE's success. Retail investors have been attracted to meme coins because they are typically very affordable, often costing just a few cents or even fractions of a cent. This allows traders to hold thousands or even millions of tokens, which is different from holding fractions of major cryptocurrencies such as ETH or BTC. 

The meme coin frenzy is also driven by community and market sentiment. They are inspired by popular internet memes and are intended to be funny, often serving as "inside jokes" for their communities. Purchasing meme coins can be seen as a way of showing support for these communities.

The institutionalization of meme coins has boosted their popularity considerably in 2024. An important development was the launch of a meme coin index by VanEck, which tracks the six largest meme coins by market capitalization (DOGE, SHIB, PEPE, WIF, FLOKI and BONK since May 2024). 

The VanEck Meme Coin Index has increased the visibility of these coins and is serving as a benchmark in the asset management industry, encouraging funds to try to outperform it. Additionally, the inclusion of tickers for meme coins on channels like Bloomberg has helped spread information about them and attract more trading activity.

What do meme coins mean for the crypto community?

Several meme coins, such as Dogecoin (DOGE), were launched with a fair distribution model, meaning they were available to the public without pre-mining or significant upfront allocations to project founders. This aligns with the views of many crypto enthusiasts who value open access and community-driven growth. The decentralized nature of these releases promotes a sense of ownership and participation among the community.

However, not all projects follow the same principles. Some meme coins are pre-mined and a considerable portion of the tokens are allocated to the creators or early investors before public distribution. This often leads to concerns about transparency and fairness, as it may allow a few individuals or groups to control a substantial part of the currency's supply. For example, coins like Shiba Inu (SHIB) have had mixed reactions due to the allocation strategies used by their creators.

Decentralized meme coins tend to be viewed more favorably by the community as they embody the principles of decentralization and community engagement that are fundamental to the cryptocurrency movement. On the other hand, centralized meme coins often face criticism due to potential risks of manipulation and unfair practices.

Potential risks when investing in meme coins

Tokenomics

First, the economics (tokenomics) of meme coins can be worrying. For example, Bitcoin has its blockchain, a well-written whitepaper, an established ecosystem, and it is deflationary. 

But, most meme coins are inflationary and do not have a maximum supply. Their ecosystems, use cases, and fundamentals are often defined by collective community jokes.

Volatility 

Meme coins are completely community-driven and generally have higher volatility compared to cryptocurrencies with higher market caps. Their prices may rise randomly due to celebrity promotion or FOMO, or drop unexpectedly when the community decides to move on to the next meme coin.

Rug pulls

Rug pull scams are a considerable risk in the meme coin market, in which developers abandon the project and disappear with investors' funds. Unfortunately, this type of scam is very common and has occurred many times over the years.

Examples of rug pulls with meme coins

Below are some examples of rug pulls with meme coins.

  • SQUID: 2021 meme coin inspired by the popular Netflix series of the same name, gained sudden traction due to the series' popularity. However, the development team applied rug pull to the project, causing users to lose their funds.

  • BALD: In July 2023, the BALD meme coin suffered a rug pull when the developer withdrew all liquidity from the Base project, Coinbase's Layer-2 network, causing the token's value to plummet to zero.

  • MetaSwap: In early 2024, the MetaSwap token suffered a rug pull, leading to substantial losses for investors. The developers suddenly removed liquidity from the project, leaving investors with worthless tokens.

  • URF: In March 2024, the team behind the URF meme coin disappeared after a $450,000 presale, leaving investors with useless tokens. Promoted by boxer and social media influencer Bryce Hall, the team disappeared within 24 hours of launch.

How to reduce risks when investing in meme coins?

Investing in meme coins can be highly speculative and risky due to their volatility and community-driven nature. However, there are strategies you can use to reduce these risks:

  1. Do Your Own Research (DYOR): Before investing in meme coins, it is important to research the project. Whenever possible, check out the team behind the project, its goals, whitepaper, roadmap, and overall community sentiment.

  2. Understand token economics: Pay close attention to meme coin supply dynamics. Currencies with unlimited or extremely high supply may face inflationary pressures, potentially leading to devaluation. Understanding the distribution of tokens and any mechanisms such as burning or staking can also provide insight into the long-term viability of the coin.

  3. Diversify your portfolio: avoid putting all your funds in a single meme coin. Diversification can help spread risk across multiple assets. Consider balancing your investment portfolio with more established cryptocurrencies such as bitcoin (BTC), ether (ETH), SOL, and BNB.

  4. Stay informed: Meme coins are heavily influenced by social media trends and news. Keep an eye on the latest developments and updates related to your investments. You can use tools like Google Alerts, join relevant social media groups, and follow influential figures in the crypto space.

  5. Set stop-loss orders: Consider using stop-loss orders to automatically sell your meme coins if the price drops below a certain level. Stop-loss orders can protect you from considerable losses.

  6. Avoid impulsive decisions: Only invest what you can risk losing and avoid making impulsive decisions led by emotions like FOMO. The buzz around meme coins can lead to impulsive purchasing decisions. Stop for a moment and evaluate whether the investment makes sense based on your research, rather than getting carried away by emotion.

How to avoid rug pull scams with meme coins?

  1. Check liquidity: A healthy liquidity pool is essential for the stability of any cryptocurrency. Make sure the meme coin you are interested in has locked liquidity, which means developers cannot withdraw funds easily. Services like Unicrypt can be used to check the status of the liquidity lock.

  2. Review the smart contract: If you have technical knowledge, review the project's smart contract. Look for red flags, such as features that allow developers to create unlimited tokens or transfer large amounts of funds. Alternatively, look for third-party audits from reputable security companies like CertiK or Hacken.

  3. Check the team: An anonymous team can be a warning sign. While anonymity is common in the cryptocurrency world, it can also be used by scammers to disappear without a trace. Look for projects with transparent and trustworthy teams that have a verifiable track record in the industry.

  4. Assess community involvement: A strong, active community can be a sign that the project is legitimate. Engage with the community on platforms like Discord, Telegram, or Twitter to gauge their sentiments and activities. Be wary of projects with fake followers or an unusually high amount of exaggerated promotions.

  5. Check the project roadmap: Legitimate projects often have a detailed roadmap outlining their development goals and timeline. Compare the roadmap to the project's actual progress to see if they are delivering on their promises. Projects that make unrealistic promises or frequently fall behind schedule may be suspect.

  6. Look for red flags: Be wary of projects that rely heavily on advertising and celebrity endorsements without offering solid information about their technology or use case. High-pressure tactics, such as limited-time offers or guaranteed returns, are often signs of a scam.

By following these guidelines and maintaining a healthy level of skepticism, you can better navigate the meme coin landscape and avoid potential scams like rug pulls. Always remember that investing in cryptocurrencies, especially meme coins, carries considerable risk and it is essential to only invest money that you can afford to lose.

As of June 2024, the total market capitalization of meme coins is approximately $63 billion. The top 6 meme coins are DOGE, SHIB, PEPE, WIF, BONK and FLOKI – according to data from CoinMarketCap.

Dogecoin (DOGE)

Dogecoin (DOGE) was created in 2013 by software engineers Billy Markus and Jackson Palmer. It was inspired by a Shiba Inu dog meme and was intended to be a joke cryptocurrency to attract public attention. As it is a fork of Litecoin (LTC), DOGE adopts the same Proof-of-Work (PoW) mechanism and does not have a maximum supply. 

To learn more details about DOGE, check out the article What is Dogecoin?.

Shiba Inu (SHIB)

Shiba Inu (SHIB) is DOGE's rival and is often called the "Dogecoin killer". The SHIB is also named after a Japanese dog breed. It was created by an anonymous developer named Ryoshi in August 2020. The main difference between DOGE and SHIB is that SHIB has a limited supply of 1 quadrillion tokens, 50% of which have been burned or donated to institutions. charity. The SHIB ecosystem also includes a decentralized exchange (DEX), an NFT art incubator, NFTs, and an NFT game.

To learn more about SHIB and its ecosystem, check out What is Shiba Inu (SHIB)?

PEPPER (PEPPER)

PEPE (PEPE) is a meme coin inspired by the popular internet meme character Pepe the Frog. Launched in April 2023, PEPE quickly gained popularity due to its humorous and nostalgic appeal to internet culture enthusiasts. PEPE has a circulating supply of 420 trillion tokens.

Dogwifhat (WIF)

Dogwifhat (WIF) is a meme coin that has attracted a lot of attention since its launch in late 2023. Unlike some meme coins that revolve around utility, Dogwifhat remains purely a meme-centric token.

FLOKI (FLOKI)

FLOKI (FLOKI) is a meme coin inspired by Elon Musk's Shiba Inu dog. Launched with the aim of merging memes with real-world utilities, FLOKI has developed into a project with an ecosystem that includes an NFT marketplace, collections and NFT staking.

Bonk (BONK)

BONK (BONK) is a dog-themed meme coin on the Solana blockchain. Launched in 2022, BONK gained attention after 50% of its total supply was airdropped to the Solana community.

Milady meme coin (LADYS)

The Milady meme coin (LADYS) was launched in May 2023. Inspired by the Milady NFT collection, LADYS aims to combine meme coins with the growing popularity of NFTs. The total supply of LADYS is 888 trillion tokens.

How to buy meme coins

You can buy the most popular meme coins like DOGE, SHIB, PEPE, and WIF on cryptocurrency exchanges like Binance. For less popular meme coins, you can use decentralized exchanges. We will use DOGE as an example.

1. Log in to your Binance account. Access [Trade] in the top bar and select the Spot Market page.

2. On the right side of the screen, type “DOGE” in the search bar and you will see the available trading pairs. In this example, we will use the DOGE/FDUSD pair. Click on “DOGE/FDUSD” to open your trading page.

3. Then scroll down to the [Spot] box and select your preferred order type. We will use a market order in this example. Enter the amount of DOGE you want to purchase and click [Buy DOGE] to confirm the order. When the order is filled, you will see the purchased DOGE in your Binance Spot Wallet.

Final considerations

With the daily appearance of new meme coins on the market, many traders expect to make profits as happened with DOGE and SHIB. However, it is important to do your own research (DYOR) before committing to any meme coin project. Keep in mind that meme coins are often more volatile than other digital currencies. Trading or investing in cryptocurrencies involves high risks. Meme coins are mainly community-driven projects and can suddenly experience huge drops. Therefore, never invest an amount that you cannot risk losing.

Further reading

  • What is Dogecoin?

  • Or that it is Shiba Inu (SHIB)?

  • What Is Currency Burning?

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