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Key Points

  • Memecoins are inspired by internet memes and tend to be more volatile than mainstream cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).

  • Memecoins are often popular due to their low prices, community-driven nature, aggressive marketing on social media, and endorsements by famous celebrities.

  • Memecoins tend to have inflationary token economics, high volatility, and a high probability of runaway scams, so they are extremely risky.

Introduction

Memecoins are an important part of the cryptocurrency market and are known for their fast-moving and unpredictable prices. They are often inspired by internet memes and jokes and spread through social media and online communities. In this article, we will take a closer look at memecoins, why they are popular, and explore the potential risks associated with them.

What is Memecoin?

Memecoins are cryptocurrencies that are inspired by memes or jokes on the internet and social media. Dogecoin (DOGE) was the first memecoin ever created, launched in 2013. It started out as a parody inspired by a popular meme about a Japanese Shiba Inu named Kabosu.

Memecoin prices tend to be highly volatile. Community-driven memecoins can become famous overnight, fueled by online community hype and fear of missing out (FOMO). However, their prices can drop dramatically and unexpectedly as traders switch to other new memecoins.

Another commonality of meme coins is that they have a huge supply, or even no upper limit. For example, the total supply of Shiba Inu Coin (SHIB) is 1,000 trillion, and DOGE has no maximum supply. Generally speaking, meme tokens do not have a burn mechanism. Due to the huge supply, the price is naturally relatively low.

During the COVID-19 pandemic, retail investors sought to hedge against inflation, which drove the cryptocurrency market to grow rapidly. Memecoins also took advantage of the situation, with market capitalizations soaring and new products emerging one after another. The trend gained strong momentum after the "meme stock" events of GameStop (GME) and AMC Entertainment (AMC), when the Reddit community pushed the price of memecoins up sharply.

Taking this as inspiration, people began to joke about pushing up the price of Dogecoin (DOGE) and making it a cryptocurrency comparable to GME. This trend, coupled with the support of well-known figures such as Tesla CEO Elon Musk, led to a sharp increase in the price of DOGE.

The memecoin craze further gained momentum when traders began exploring other memecoins like Shiba Inu Coin (SHIB) in an attempt to replicate DOGE’s success. Retail investors were attracted to memecoins because they were cheap, often costing just pennies or even fractions of a cent. As a result, traders could hold thousands or even millions of memecoins, which is a completely different feeling than holding a small portion of a mainstream cryptocurrency like ETH or BTC.

Community and market sentiment also drive the memecoin craze. Memecoins are inspired by popular memes on the Internet. They are meant to be funny and are usually just "inside jokes" in the community. Buying memecoins can be said to be expressing your support for the community.

In 2024, the institutionalization of memecoins has once again greatly increased their popularity. One of the important developments is the launch of the Memecoin Index by VanEck, which tracks the six largest memecoins by market capitalization (DOGE, SHIB, PEPE, WIF, FLOKI, and BONK as of May 2024).

VanEck's memecoin index has increased the visibility of memecoins and has become a benchmark for the asset management industry, encouraging funds to try to outperform the index. In addition, publishing memecoin codes on channels such as Bloomberg helps spread information about memecoins and attract more trading activity.

What do memecoins mean for the cryptocurrency community?

Many memecoins, such as Dogecoin (DOGE), were launched with a fair distribution model, meaning they were directly available to the public without pre-mining or distributing a large number of tokens to project founders early on. This aligns with the values ​​of many cryptocurrency enthusiasts for open access and community-driven development. The decentralized nature of this release model increases the sense of ownership and participation in the community.

However, not all projects follow the same principles. Some memecoins adopt a pre-mining model, where a majority of tokens are distributed to creators or early investors before the public release. This often raises concerns about transparency and fairness, as it can lead to a small number of individuals or groups controlling a large portion of the token supply. For example, memecoins such as Shiba Inu Coin (SHIB) have received mixed reactions due to the distribution strategy adopted by their creators.

Decentralized meme coins are often more popular with the community because they embody the principles of decentralization and community participation, which are the foundation of cryptocurrency operations. In contrast, centralized meme coins are often negatively evaluated due to potential manipulation risks and unfair behavior.

Potential risks of investing in memecoins

Token Economics

First, the token economics of memecoins are worrying. Take Bitcoin as an example, it has a dedicated blockchain, a detailed white paper, a mature ecosystem, and deflationary characteristics.

In contrast, most memecoins have uncapped supply and are therefore inflationary, with their ecosystems, use cases, and fundamentals often relying little more than the collective joke of the community.

Volatility

Memecoins are highly community-driven and are often more volatile than larger market cap cryptocurrencies. Their prices can suddenly spike due to celebrity hype or fear of missing out (FOMO), but can also unexpectedly crash when the community decides to embrace the new coin.

Runaway scam

A major risk in the memecoin market is the runaway scam, where developers abandon their projects and disappear with investors’ funds. Unfortunately, this type of scam is extremely common and has occurred many times over the years.

Memecoin scam case

Here are a few examples of memecoin scams that went rogue.

  • SQUID: A meme coin launched in 2021, inspired by the hit Netflix series of the same name, which became popular due to the popularity of the series. However, the development team eventually abandoned the project and ran away, causing users to lose their investment funds.

  • BALD: In July 2023, the BALD meme coin ran away, and the developers withdrew all liquidity of the token from Coinbase's Layer-2 Base network, causing the value of the token to plummet to zero.

  • MetaSwap: In early 2024, the MetaSwap tokens ran away, causing huge losses to investors. The developers suddenly withdrew the liquidity, leaving investors with worthless tokens.

  • URF: In March 2024, the team behind the URF meme coin disappeared after raising $450,000 from a presale, leaving investors with worthless tokens. The team was heavily promoted by boxer and influencer Bryce Hall, but ran away within 24 hours of the token launch.

How to reduce the risk of investing in memecoin?

Given the high volatility and community-driven nature of memecoins, investing in memecoins can be highly speculative and risky. However, there are strategies you can adopt to reduce your risk:

  1. Do Your Own Research (DYOR): It is very important to do research on a project before investing in a memecoin. If possible, double check the team behind the project and its goals, whitepaper, project roadmap, and overall community sentiment.

  2. Understand token economics: Pay close attention to the supply dynamics of memecoins. Tokens with unlimited or very high supply will face inflationary pressures and may depreciate. Understanding the mechanisms of token distribution, destruction or staking can also help provide insight into the long-term development potential of tokens.

  3. Diversify your portfolio: Avoid investing all your money in one memecoin. Diversification spreads your risk across multiple assets. Consider balancing your portfolio with more established crypto assets like Bitcoin (BTC), Ethereum (ETH), SOL, and BNB.

  4. Stay tuned: Memecoins are heavily influenced by social media trends and news. Keep an eye on the latest developments and news related to your investment. You can use tools like Google Alerts, join relevant social media groups, and follow authority figures in the cryptocurrency space.

  5. Set a stop loss order: You can use the stop loss order feature to automatically sell your Memecoin when the price falls below a certain level. A stop loss order can protect you from incurring significant losses.

  6. Avoid impulsive decisions: Invest rationally and within your means, and avoid making impulsive decisions due to emotions such as FOMO (fear of missing out). The hype of memecoins may lead to impulsive purchases. Please stop and evaluate whether the investment project is reasonable based on your own research, and don't be overwhelmed by excitement.

How to avoid falling into the memecoin scam?

  1. Check liquidity: A healthy liquidity pool is critical to the stability of any cryptocurrency. Make sure the memecoin you are interested in has locked liquidity so that developers cannot easily withdraw funds. Services such as Unicrypt can be used to check liquidity lock status.

  2. Inspect smart contracts: If you have the technical knowledge, you can inspect the project’s smart contracts. Pay attention to red flags, such as functions that allow developers to mint unlimited tokens or transfer large amounts of funds. Alternatively, you can get a third-party audit done by a reputable security firm like CertiK or Hacken.

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

  4. Assess community engagement: Legitimate projects often have strong and active communities. Interact with their community on platforms like Discord, Telegram, or Twitter to gauge community sentiment and activity. Be wary of projects with fake followers or unusually high hype.

  5. Review the project roadmap: Legitimate projects often have detailed roadmaps outlining their development goals and timelines. Compare the roadmap with the actual progress of the project to confirm whether it is delivering on its promises. Projects that make unrealistic promises or frequently fall behind schedule are suspicious.

  6. Look for red flags: Be wary of projects that rely too heavily on hype and celebrity endorsements without providing substantive information about their technology or use cases. High-pressure tactics like limited-time offers or guaranteed returns are often signs of a scam.

Following the above guidelines and maintaining a healthy dose of skepticism will help you better understand the memecoin market and avoid potential scams such as runaway scams. Please remember that investing in cryptocurrencies (especially memecoins) carries huge risks, so you must invest rationally and within your means.

As of June 2024, the total market value of memecoins is approximately $63 billion. According to CoinMarketCap, the top six memecoins are DOGE, SHIB, PEPE, WIF, BONK, and FLOKI.

Dogecoin (DOGE)

Dogecoin (DOGE) was created in 2013 by software engineers Billy Markus and Jackson Palmer as a parody cryptocurrency inspired by the Shiba Inu meme to attract public attention. As a fork of Litecoin (LTC), Dogecoin uses the same Proof of Work (PoW) mechanism and has no supply cap.

For more information about Dogecoin, please refer to "What is Dogecoin?"

Shiba Inu Coin(SHIB)

Shiba Inu Coin (SHIB) is a competitor of Dogecoin and is known as the "Dogecoin Killer". Shiba Inu Coin is also named after the Japanese Shiba Inu and was created in August 2020 by an anonymous developer named Ryoshi. Unlike Dogecoin, the supply of Shiba Inu Coin is capped at 1,000 trillion, of which 50% are destroyed or donated to charity. The Shiba Inu Coin ecosystem consists of a decentralized exchange platform, an NFT art incubator, NFTs, and NFT games.

For more information about Shiba Inu Coin and its ecosystem, please refer to "What is Shiba Inu Coin (SHIB)?"

Pepper (PEPPER)

The Pepe (PEPE) meme coin is inspired by the popular online meme character Pepe the Frog. Launched in April 2023, PEPE quickly became popular as it attracted many online culture enthusiasts with its humorous and nostalgic style. Its circulating supply is 420 trillion.

Dogwifhat (WIF)

The Dogwifhat (WIF) memecoin has attracted much attention since its launch in late 2023. Unlike some memecoins that began to seek practical functions, Dogwifhat remains purely meme-centric.

FLOKI (FLOKI)

FLOKI (FLOKI) is a meme coin inspired by Elon Musk’s Shiba Inu. Designed to combine memes with real-world utility, FLOKI has developed its own ecosystem, including an NFT marketplace, NFT collections, and staking capabilities.

About Bonk (BONK)

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

Milady Meme Coin (LADYS)

Milady Meme Coin (LADYS) was launched in May 2023 and is inspired by the Milady NFT collection, aiming to combine meme coins with the increasingly popular NFTs. The total supply of LADYS is 888 trillion.

How to buy Memecoin

Popular meme coins such as DOGE, SHIB, PEPE and WIF can be purchased through cryptocurrency exchanges such as Binance. Other less famous meme coins can be purchased on decentralized exchanges. Let’s take Dogecoin as an example.

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

2. Enter "DOGE" in the search bar on the right side of the screen to view the available trading pairs. Here we take DOGE/FDUSD as an example. Click "DOGE/FDUSD" to open the trading page.

3. Scroll down to the [Spot] box and select the order type you want. Here we take a market order as an example. Enter the amount of DOGE you want to buy, click [Buy DOGE], and confirm the order. After the order is executed, you will see the purchased Dogecoin in your Binance spot account.

Conclusion

New memecoins are launched every day, and traders are looking to replicate the success of Dogecoin and Shibacoin to earn high returns, making the market complex. Therefore, please do your own research (DYOR) before investing in any memecoin. Please note that memecoins are more volatile than other digital currencies. The high risks associated with trading or investing in cryptocurrencies should not be ignored. Memecoins are mainly community-driven and may experience unexpected crashes. Please do not invest more money than you can afford.

Further reading

  • What is Dogecoin?

  • What is Shiba Inu Coin (SHIB)?

  • What is token burning?

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