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Key points: 

  • Meme coins are cryptocurrencies inspired by memes that have higher volatility than mainstream cryptocurrencies such as bitcoin (BTC) and ether (ETH). 

  • Meme coins usually gain popularity due to their low prices, community focus, active social media marketing, and high profile endorsements.

  • Meme coins carry significant risks due to their often inflationary token economics, high volatility, and high potential for "doormat pulling" fraud.

Introduction

Meme coins make up a large part of the cryptocurrency market and are known for their rapid 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 look at what meme coins are, why they have become so popular, and the potential risks associated with them.

What are meme coins?

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

Meme coins are very volatile. They are mostly community driven and can quickly gain popularity thanks to online community support and FOMO. However, their price can also drop unexpectedly as traders turn their attention to the next meme coin.

Another typical characteristic of meme coins is their huge or unlimited supply. For example, Shiba Inu (SHIB) has a total supply of 1 quadrillion tokens, while DOGE has no maximum supply. Since meme tokens usually do not have a coin burning mechanism, the huge supply explains their relatively low price.

During the COVID-19 pandemic, the cryptocurrency market grew as retail investors looked for ways to hedge against inflation. Amidst the hype, meme coins have thrived, increasing both their market cap and diversity. This phenomenon gained momentum after the GameStop ( GME ) and AMC Entertainment ( AMC ) meme stock saga, when the Reddit community significantly inflated the prices of these assets. 

Inspired by this, people started joking about raising the price of Dogecoin (DOGE) to create a cryptocurrency equivalent of GME. This trend, combined with endorsements from celebrities such as Tesla CEO Elon Musk, has led to a significant increase in the price of DOGE. 

The hype surrounding meme coins heated up even more as traders began to explore other meme coins such as Shiba Inu (SHIB) in hopes of replicating DOGE's success. Retail investors have been attracted to meme coins because they are usually very affordable, often costing only 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 like ETH or BTC. 

The meme coin craze is also driven by community and market sentiment. Meme Coins are inspired by popular internet memes and are meant to be fun, along with insider jokes within their communities. Buying meme coins can be seen as a way to show support for these communities.

The institutionalization of meme coins greatly increased their popularity in 2024. A key development was asset manager VanEck's launch of the Memecoin Index, which tracks the six largest memecoins by market capitalization (DOGE, SHIB, PEPE, WIF, FLOKI and BONK as of May 2024). 

The VanEck Memecoin Index has increased the visibility of memecoins and is a benchmark in the asset management industry, prompting funds to strive to surpass it. Also, posting meme coin tickers on channels like Bloomberg helped spread the word about meme coins and attract more trading activity.

What do meme coins mean for the crypto community?

Many meme coins, such as Dogecoin (DOGE), were launched with a fair distribution model, meaning they were made available to the public without pre-mining or significant early distributions to the project's founders. This aligns with the views of many cryptocurrency enthusiasts who value open access and community-driven growth. The decentralized nature of these launches fosters a sense of belonging and participation among the community.

However, not all projects follow the same principles. Some meme coins have a pre-mining phase, with a significant portion of tokens being distributed to founders or early investors before the public distribution. This often raises concerns about transparency and fairness, as it can allow a few individuals or groups of individuals to control a large portion of the coin's supply. For example, coins such as Shiba Inu (SHIB) have received mixed reactions due to the distribution strategies used by their creators.

Decentralized meme coins are usually more favorably received by the community because they embody the principles of decentralization and community engagement that are the foundation of the cryptocurrency movement. Conversely, centralized meme coins are often criticized for potential risks of manipulation and unfair practices.

Potential Risks of Investing in Meme Coins

Tokenomics

First of all, the tokenomics of meme coins can cause concern. For example, Bitcoin has its own blockchain, a well-written whitepaper, an established ecosystem, and is deflationary. 

And most meme coins are inflationary and do not have a maximum supply. Their ecosystem, use cases, and fundamentals are often defined by the jokes of the community.

Volatility 

Meme coins are largely community driven and tend to be more volatile compared to cryptocurrencies with larger market caps. Their prices can randomly spike from celebrity shilling or FOMO, or drop unexpectedly when the community decides to jump on the next meme coin.

Pulling out the rug

Pulling the rug is a significant risk in the meme coin market, where developers abandon the project and disappear along with investors' funds. Unfortunately, this type of scam is very common and has happened many times over the years.

Examples of drawing a mat with meme coins

Below are some examples of drawing a mat with meme coins.

  • SQUID: A 2021 meme coin inspired by the popular Netflix show of the same name has suddenly become popular due to the show's popularity. However, the development team pulled the rug out from under the project, as a result of which users lost their funds.

  • BALD: In July 2023, the BALD meme coin suffered a setback when the developer withdrew all of the coin's liquidity from the Coinbase Tier 2 core network, causing the token's value to plummet to zero.

  • MetaSwap: At the beginning of 2024, the MetaSwap token experienced a drop, which resulted in significant losses for investors. Developers suddenly took away liquidity, leaving investors with worthless tokens.

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

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. If possible, check the team behind the project, its goals, whitepaper, roadmap, and general community sentiment.

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

  3. Diversify your portfolio: Don't invest all your funds in one meme coin. Diversification can help spread risk across different assets. Consider balancing your investment portfolio with more popular cryptocurrencies such as bitcoin (BTC), ether (ETH), SOL and BNB.

  4. Stay tuned: meme coins are heavily influenced by social media trends and news. Follow the latest developments and updates related to your investments. You can use tools like Google Alerts, join relevant social media groups, and follow influencers in the cryptocurrency world.

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

  6. Avoid impulsive decisions: Invest only what you can afford to lose and avoid impulsive decisions driven by FOMO (fear of missing out). The hype around meme coins can lead to impulsive buying decisions. Take a step back and assess whether the investment makes sense based on your research, rather than drowning in excitement.

How to avoid pulling the rug out from under meme coins?

  1. Check Liquidity: A sufficient pool of liquidity is necessary for the stability of any cryptocurrency. Make sure the meme coin you're interested in has locked liquidity, meaning developers can't easily withdraw funds. Services such as Unicrypt can be used to check the status of a 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 mint unlimited tokens or transfer large amounts of funds. Alternatively, you can turn to third-party auditors at reputable security firms such as CertiK or Hacken.

  3. Check the command: An anonymous command can be a red flag. Although anonymity is common in the crypto world, it can also be used by fraudsters to disappear without a trace. Look for projects with transparent and reliable teams with a proven track record in the industry.

  4. Assess community involvement: A strong and active community can be a sign of a good project. Interact with the community on platforms like Discord, Telegram, or Twitter to gauge their sentiment and activity. Beware of projects with fake followers or an unusually high amount of shilling.

  5. Check the project roadmap: Legitimate projects usually have a detailed roadmap with development goals and timelines. Compare the roadmap with actual project progress to see if promises are being delivered. Projects that make unrealistic promises or frequently delay milestones can be suspect.

  6. Look for red flags: Be wary of projects that rely heavily on advertising and celebrity endorsements without offering substantial information about their technology or applications. 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 world of meme coins and avoid potential scams like pulling the rug out. Always remember that investing in cryptocurrencies, especially meme coins, involves significant risk and it is important 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. According to CoinMarketCap, the top 6 meme coins are DOGE, SHIB, PEPE, WIF, BONK, and FLOKI.

Dogecoin (DOGE)

Dogecoin (DOGE) was created in 2013 by programmers Billy Marcus and Jackson Palmer. It was inspired by a Shiba Inu dog meme and was meant to be a crypto-joke to gain public attention. As a Litecoin (LTC) fork, DOGE uses the same Proof of Work (POW) mechanism and has no maximum supply. 

For a more complete overview of DOGE, see What is Dogecoin? .

Shiba Inu (SHIB)

Shiba Inu (SHIB) is a competitor to DOGE and is often referred to as the "Dogecoin killer". SHIB is also named after a Japanese dog breed. The project 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, of which 50% has been burned and donated to charity. The SHIB ecosystem also has a decentralized exchange, NFT art incubator, NFT and NFT game.

To learn more about SHIB and its ecosystem, check out the article What is a 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 lovers. PEPE has a circulating token supply of 420 trillion.

Dogwifhat (WIF)

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

FLOKI (FLOKI)

FLOKI (FLOKI) is a meme coin inspired by Elon Musk's Shiba Inu dog. Launched with the vision of combining memes with real-world use, FLOKI has evolved into a project with an ecosystem that includes NFT marketplaces, NFT collections, and staking.

Bonk (BONK)

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

Milady Meme Coin (LADYS)

Milady Meme Coin (LADYS) was launched in May 2023. Inspired by Milady's NFT collection, LADYS aims to combine meme coins with the growing popularity of NFTs. LADYS has a total supply of 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. To buy other lesser-known meme coins, you can go to decentralized exchanges. Let's take DOGE as an example.

1. Log in to your Binance account. Then go to [Trading] in the top bar to select the spot market page.

2. Go to the right side of the screen, enter "DOGE" in the search bar to open the list of available trading pairs. We will use DOGE/FDUSD as an example. Click "DOGE/FDUSD" to open the trading page.

3. Scroll down to the [Spot] field and select the desired order type. You will use a market order in this example. Enter the amount of DOGE you want to buy and click [Buy DOGE] to confirm the order. When the order is executed, you will see the DOGE you bought in your Binance spot wallet.

Results

With new meme coins hitting the market every day and traders hoping to replicate the profits made by DOGE and SHIB, it is important to do your own research (DYOR) before using any meme coins. Remember that meme coins are very volatile compared to other digital currencies. Trading or investing in cryptocurrency involves high risk. Memecoins are largely community driven and can drop in price unexpectedly, so you should never invest money you can't afford to lose.

  • What is Dogecoin?

  • What is a Shiba Inu (SHIB)?

  • What is coin burning?

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