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Key pointsĀ
Meme coins are meme-based cryptocurrencies. They are generally more volatile than major cryptocurrencies like BTC or ETH.Ā
Meme coins are popular due to their low cost, community management, active social media marketing, and celebrity endorsements.
Meme coins come with significant risks due to inflationary tokenomics, high volatility, and widespread rug pull schemes.
Introduction
Meme coins make up a significant portion of the cryptocurrency market. They are known for rapid and unpredictable price fluctuations. These coins are created based on Internet memes and jokes, and then gain popularity through social networks and online communities. In this article, we'll look at what meme coins are and why they have gained popularity, as well as talk about the risks associated with them.
What are meme coins
Meme coins are cryptocurrencies inspired by memes from the internet and social media. The first meme coin was Dogecoin (DOGE): it was created in 2013 as a joke. The symbol of DOGE has become a popular meme with the Shiba Inu dog Kabosu.
Meme coins are extremely volatile. Mainly influenced by community support and fear of missing out (FOMO), these factors can help meme coins gain popularity very quickly. But their price could drop unexpectedly if traders become interested in another meme coin.
Another feature of meme coins is their huge or unlimited supply. For example, Shiba Inu (SHIB) has a total supply of 1 quadrillion tokens, while DOGE does not have a maximum supply at all. Since meme tokens generally do not have a coin burning mechanism, the huge supply explains their relatively low price.
Why are meme coins so popular?
During the COVID-19 pandemic, the cryptocurrency market has seen strong growth as retail investors look for ways to hedge against inflation. Amid such excitement, meme coins began to flourish: many different tokens appeared, which actively grew in market capitalization. They became especially prominent after the events surrounding GameStop (GME) and AMC Entertainment (AMC) and the emergence of āmeme stocksā when Reddit users significantly increased the prices of these assets.Ā
It all started when users agreed as a joke to raise the price of Dogecoin (DOGE) to create the cryptocurrency equivalent of GME. The movement has been supported by celebrities like Tesla CEO Elon Musk. As a result, this trend led to a rapid rise in the price of DOGE.Ā
The excitement increased even more when traders became interested in Shiba Inu (SHIB) and other meme coins in hopes of replicating the success of DOGE. These assets attract retail investors because they are affordable, often costing a few cents or even less than a cent. Such tokens can be stored in thousands or even millions: this is an important difference from major cryptocurrencies such as ETH and BTC.Ā
Demand for meme coins is also driven by community and market sentiment. Meme coins were created based on Internet memes and were intended as a joke āfor our own people.ā By purchasing such a token, the user can express support for the community.
The institutional adoption of meme coins in 2024 has also greatly increased their popularity. A key event was the launch of the VanEck meme coin index. It tracks the six largest meme coins by market capitalization (as of May 2024 these are DOGE, SHIB, PEPE, WIF, FLOKI and BONK).Ā
VanEck's Meme Coin Index has increased the coverage of meme coins and set the standard in the asset management industry, challenging other funds. In addition, meme coin tickers began to be mentioned on reputable news channels like Bloomberg, which attracted even more attention and increased trading activity.
The importance of meme coins for the crypto community
Many meme coins, such as Dogecoin (DOGE), were launched with a fair distribution model: they were immediately available to the community without pre-mining (early distribution to the project team). This mechanism fits the preferences of many crypto enthusiasts who value openness and community participation. Decentralized launches promote ownership and community involvement.
However, not all projects follow the same principles. Some meme coins undergo pre-mining, in which a significant portion of the tokens are allocated to creators or early investors before public distribution. This raises concerns about transparency and fairness, as a small group of individuals could seize control of a significant portion of the supply. For example, a similar distribution of Shiba Inu (SHIB) caused mixed reactions from the community.
Users prefer decentralized meme coins because they adhere to the fundamental principles of the cryptocurrency space: decentralization and community participation. Centralized meme coins have faced criticism due to potential risks of manipulation and fraud.
Potential Risks of Meme Coins
Tokenomics
The first concern is the tokenomics of meme coins. For example, Bitcoin has its own blockchain, detailed technical documentation (whitepaper), an established ecosystem and a deflationary mechanism.Ā
However, most meme coins are inflationary in nature and do not have a maximum supply. Their ecosystem, use cases, and fundamentals are often driven by community jokes.
VolatilityĀ
Meme coins are largely community driven and tend to be more volatile than large market cap cryptocurrencies. Meme coin prices may suddenly rise after a celebrity promotion or FOMO, or they may fall after the community turns its attention to another fun asset.
Rug pull scheme
A rug pull scheme is a situation where developers abandon a project and disappear with investors' funds. Unfortunately, this type of scam is very common, and such schemes have occurred many times in recent years.
Examples of rug pull schemes with meme coins
Below are examples of rug pull patterns with meme coins.
SQUID: The 2021 meme coin inspired by the TV series Squid Game has attracted quite a bit of attention. However, the developers suddenly resorted to rug pull, and many users lost their funds.
BALD: In July 2023, the developers of the BALD meme coin also implemented a rug pull scheme and took all of the project's liquidity from Base, Coinbase's second-layer network. As a result, the value of the token dropped to zero.
MetaSwap: At the beginning of 2024, investors in the MetaSwap token faced serious losses. The developers suddenly withdrew liquidity, and all coins became worthless.
URF: In March 2024, the developers of the URF meme coin conducted a pre-sale of the token for $450,000, after which they absconded with investorsā money. The project was promoted by boxer and influencer Bryce Hall, but the development team disappeared within 24 hours of launch.
How to reduce risks when investing in meme coins
Investing in meme coins is considered highly speculative and risky as these assets are volatile and highly dependent on community sentiment. However, there are several ways to reduce potential risks:
Do Your Own Research (DYOR): It is important to research the meme coin project before investing. If possible, check the development team, their goals, technical documentation, roadmap and community sentiment.
Understand tokenomics: pay attention to the supply dynamics of a meme coin. Coins with unlimited or excessive supply may face inflationary pressures and further devaluation. To draw conclusions about the long-term viability of a project, study the token distribution process and the underlying mechanisms, including burning or staking.
Diversify your portfolio: Don't invest everything in one meme coin. It is better to distribute risks between different assets through diversification. Invest some of your capital in more established cryptocurrencies such as Bitcoin (BTC), Ether (ETH), SOL and BNB.
Stay tuned: Meme coins are influenced by trends and news on social media. Keep track of current events related to your assets. To do this, you can use special tools like Google Alerts, join groups on social networks and follow influencers in the cryptocurrency space.
Set Stop Loss Orders: Remember to use stop loss orders. They will automatically sell the meme coin if the price drops below a set level. A stop loss helps protect against serious losses.
Avoid impulsive decisions: invest only amounts that you are willing to lose. Think about your actions and don't give in to emotions or fear of missing out (FOMO). The hype around meme coins can lead to impulsive purchasing decisions. Take your time and carefully evaluate the risks associated with investing in a particular asset.
How to avoid becoming a victim of a rug pull scheme
Check liquidity: For any cryptocurrency to operate smoothly, there needs to be a sufficient pool of liquidity. Make sure that the selected project has blocked liquidity and the developers will not be able to withdraw funds so easily. Services such as Unicrypt are suitable for checking blocking.
Check the smart contract: Examine the project's smart contract if you have enough skills and knowledge to do so. Pay attention to warning signs. For example, you should be wary of features that allow developers to create an unlimited number of tokens or transfer large amounts of funds. For greater reliability, you can look into third-party audits from reliable organizations like CertiK and Hacken.
Check the team: An anonymous development team is a red flag. Although anonymity is one of the fundamental principles of cryptocurrencies, it can be used for fraudulent purposes. Choose projects with open and reliable teams that already have industry experience.
Assess community involvement: An active community indicates the legitimacy of the project. Chat with project supporters on platforms like Discord, Telegram or Twitter to gauge sentiment and engagement. Beware of projects with inflated subscribers or overly aggressive promotion.
Review the roadmap: A robust project should have a detailed roadmap outlining goals and timelines for development. Compare the roadmap with the actual project accomplishments to evaluate the results of the work. If developers make unrealistic promises or frequently delay deadlines, you should be wary.
Look out for red flags: Be wary of projects that rely heavily on advertising and celebrity endorsements but don't provide significant information about their technology or use cases. High-pressure tacticsāsuch as limited-time offers or guaranteed returnsāoften indicate fraud.
Follow these guidelines and remain cautious to avoid potential scams like rug pull. Remember that investing in cryptocurrencies, especially meme coins, carries significant risk, so only invest money you are willing to lose.
Review of popular meme coins
As of June 2024, the total market capitalization of meme coins is approximately $63 billion. According to CoinMarketCap, the top 6 meme coins include DOGE, SHIB, PEPE, WIF, BONK and FLOKI.
Dogecoin (DOGE)
Dogecoin (DOGE) was created in 2013 by programmers Billy Marcus and Jackson Palmer. They were inspired by a meme about a Shiba Inu dog to attract the attention of the community. Being a fork of Litecoin (LTC), DOGE uses the same Proof of Work (POW) mechanism and does not have a maximum supply.Ā
To get a complete understanding of DOGE, check out the article What is Dogecoin.
Shiba Inu (SHIB)
Shiba Inu (SHIB) is a competitor to DOGE: this coin has even been nicknamed the āDogecoin killerā. Its name comes from the Japanese Shiba Inu dog breed. SHIB was created in August 2020 by an anonymous developer under the username Ryoshi. The main difference between DOGE and SHIB coins is that the latter has a limited supply of 1 quadrillion tokens, of which 50% are burned and donated to charity. The SHIB ecosystem includes a decentralized exchange, an NFT art incubator, NFT tokens, and an NFT game.
To learn more about SHIB and its ecosystem, check out the article What is Shiba Inu (SHIB).
Pepper (PEPPER)
Pepe (PEPE) is a meme coin inspired by the popular Internet meme Pepe the Frog. PEPE launched in April 2023 and quickly gained popularity among internet culture fans due to its nostalgia and fun imagery. The total supply of PEPE is 420 trillion tokens.
Dogwifhat (WIF)
Dogwifhat (WIF) is a meme coin that has received quite a bit of attention since its launch in late 2023. Unlike other meme coins that offer a variety of uses, Dogwifhat remains strictly a joke token.
FLOKI (FLOKI)
FLOKI is a meme coin inspired by Elon Musk's Shiba Inu dog. The goal of this project is to combine memes with real benefits. Over time, an entire ecosystem has formed around FLOKI, which includes NFT marketplaces, NFT collections, and staking.
Bonk (BONK)
BONK (BONK) is a dog-themed meme coin on the Solana blockchain. The BONK project was launched in 2022 and attracted a lot of attention after 50% of the total supply was airdropped among 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. The total supply of LADYS is 888 trillion tokens.
How to buy meme coins
You can buy popular meme coins such as DOGE, SHIB, PEPE and WIF on cryptocurrency exchanges such as Binance. Lesser-known meme coins can be found on decentralized exchanges. Let's take DOGE as an example.
1. Login to your Binance account. Open the "Trading" tab in the top bar and go to the spot market.
2. Enter "DOGE" in the search bar on the right side of the screen and you will see the available trading pairs. We will use DOGE/FDUSD as an example. Click on it to open the trading page.
3. Scroll down to the Spot field and select your order type. In this example we will use a market order. Specify the quantity of DOGE to purchase and click āBuy DOGEā. Once the order is executed, the purchased coins will appear in the Binance Spot Wallet.
Finally
New meme coins appear every day, and traders hope that they will repeat the success of DOGE and SHIB. Please use caution and be sure to do your own research before purchasing any meme coins. Remember that meme coins are more volatile than other digital assets. Trading and investing in cryptocurrencies involves high risk. Meme coins are largely community driven and can drop in value unexpectedly, so never invest money you are not prepared to lose.
Recommended reading
What is Dogecoin
What is Shiba Inu (SHIB)?
What is coin burning?
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