Binance Research (Binance Academy) released a report earlier this month (Understanding the Rise of Meme Coins) exploring the relationship between meme coins and contemporary economics, where internet culture, global inflation, and the characteristics of meme coins are all influencing factors. Facing this year's bull market for meme coins, how should we think about whether it is a good investment or speculative target? Reading this article may provide you with different perspectives.
What are meme coins?
Meme coins, unlike mainstream cryptocurrencies (BTC, ETH), are born from internet memes and popular culture. The popularity and price of these tokens are usually directly related to the extent of the spread of internet memes, such as Dogecoin (DOGE) and PUNT coin, which have stood out in the market due to their community and the appeal of internet cultural symbols.
These meme coins often have high-risk and high-return characteristics but do not possess actual application functions.
Inflation pushes investors towards 'dual-high' assets.
Binance Research believes that after the pandemic in 2020, central banks around the world began to print money in large amounts to stimulate the economy. Data shows that the global money supply increased by 25% between 2020 and 2022. Faced with continuously depreciating cash and annual inflation, part of the funds flowed into traditional assets, while many funds chose to enter high-risk, high-return investment markets—cryptocurrencies became one of the beneficiaries, and meme coins, as one of the 'dual-high' options, although unable to generate actual economic value, attracted a large number of speculators through their narratives and the spread of memes.
The global money supply has grown by nearly 25% from 2020 to 2022. Young people are anti-traditional: the investment culture of meme coins.
Binance Research found that with rising inflation and housing prices, the younger generation in the U.S. is finding it increasingly difficult to accumulate assets. These adverse factors have intensified the younger generation's trust crisis in the traditional financial system, leading them to pursue investments characterized by 'anti-traditional finance.' Thus, meme coins have become one of their options. This sentiment of 'financial nihilism' not only drives young investors to invest in meme coins but also promotes the rapid growth of the meme coin market.
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Millennials and Generation Z account for 94% of investors in the cryptocurrency market. The phenomenon of meme coins reflects the reality of the crypto space.
Binance Research analyzes the rapid growth of meme coins, tracing it back to the ICO (Initial Coin Offering) boom in 2017. At that time, many altcoin projects attracted retail funding by depicting future visions to the market and utilized transparent token sale mechanisms to attract investors.
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However, in recent years, due to the continuous opposition from regulatory agencies (such as the SEC) against this sales model, considering it too similar to securities, many projects have turned to private financing (such as seeking venture capital firms), resulting in tokens that are often characterized by 'low liquidity' but 'high valuation,' which has caused significant dissatisfaction among retail investors. Consequently, meme coins with characteristics of 'fairness' and 'transparency' have gradually become an alternative choice for investors.
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Although meme coins do not primarily rely on technological innovation as their selling point, they share certain commonalities with technology-driven altcoins in terms of building community consensus. Altcoins attract investor trust in their future products through technological vision and potential, while meme coins rely on emotion and the power of community to create speculative demand through simple narratives.
The enormous risks of meme coins cannot be overlooked.
The high risk of meme coins cannot be ignored. The report points out that the elimination rate of meme coins is extremely high, with 97% of meme coins ultimately having nearly zero trading volume. This indicates that while meme coins can provide high return opportunities, their value often proves difficult to sustain, being more of a short-term speculative tool; at the same time, the meme coin market also faces manipulation risks. Despite blockchain transparency revealing token flows, some large holders can still disguise the fact of concentrated holdings through creating new addresses or other means, manipulating prices and crashing them just before retail investors can exit.
In addition to low survival rates and the issue of large holders manipulating prices, meme coins also lack substantial technological innovation. The excessive focus on capital and attention may lead to the neglect of other projects that have potential for development driven by technology, thereby affecting the long-term development of the crypto industry.
Where should we go from here?
The report indicates that the success of meme coins provides insights for the future development of blockchain and cryptocurrencies. The community cohesion demonstrated by meme coins is worth learning from for all crypto practitioners and highlights the importance of retail investors in the cryptocurrency circle. Although meme coins are not outstanding in technological innovation, they showcase the three purest characteristics in the cryptocurrency market: 'transparency,' 'fairness,' and 'decentralization.'
This article, 'Meme Coins Become a Contemporary Prominence! Binance Research Analysis: Financial Nihilism Attracts Young Groups, 97% Trading Volume Drops to Zero' was first published on Chain News ABMedia.
