Meme Coins: Should You Take Them Seriously?
In cryptocurrency, “meme coins” have long become an established phenomenon. While they started, as the name suggests, for a bit of fun in 2013, they have pervaded the crypto market ever since. But are they worth your attention, or should you, too, take them as a joke? This blog covers the origin of meme coins, their unexpected growth, and the volatility of their community-driven appeal.
- Meme Coins Defined: They are cryptocurrencies dependent on internet trends and community support rather than functionality.
- Dogecoin’s Influence: Their success, especially after it caught Elon Musk’s attention, gave the original coin the highest market cap to this day.
- Shiba Inu and Memecoin Proliferation: Shiba Inu’s rise on top of Dogecoin established such coins as a niche and led to a wave of similar tokens.
- Community and Social Media Power: Community hype and social media are key to upholding these kinds of projects so they can maintain their value long-term.
- High Risk and Volatility: They can potentially bring quick gains, though at the price of high risk and crazy price fluctuations.
- Meme Coins vs. Traditional Cryptocurrencies: Unlike utility-focused cryptocurrencies, meme coins exist mainly for entertainment and are community-driven.
They are a type of cryptocurrency created as a joke and often based on existing internet memes. By contrast with traditional cryptocurrencies designed to address specific problems or offer functionality, these assets are entirely community-driven and depend on internet culture and social media influence. Apart from fun, the main appeal lies in their low entry cost, ease of access, and potential for high returns during the upward spikes.
The Rise of Dogecoin
As a joke, Dogecoin broke onto the scene in 2013. Soon it had become a phenomenon. It was intended to reflect the lighthearted nature of the project if anything—it was really an internet trends satire and especially alt cryptocurrencies: even on a coin featuring in-character Shiba Inu dog from viral "Doge" meme. But despite this, Dogecoin managed to catch on among internet users who were attracted by the unusual premise behind the project.
Tech entrepreneur Elon Musk gave Dogecoin a big boost by endorsing it on social media in 2021. Musk sent out a flurry of tweets calling Dogecoin "the people's crypto," resulting in rampant retail interest and a purchasing spree (The Verge, 2021). This increase in demand propelled Dogecoin’s price at $0.74 per coin in May 2021, around the same period of time Musk appeared on Saturday Night Live (CoinMarketCap, 2021) (CNBC, 2021). It also led Dogecoin to be the first meme coin ever to be listed on a major crypto exchange, thereby making Dogecoin not only more accessible but legitimizing it as well. Today it still leads in market capitalization, and is traded daily.
Shiba Inu Case
We already know that there are several instances of extra fees in the process of traditional contracts, and these things add to the price, mainly if it’s an unusual case. Third parties are used less through smart contracts, removing their associated fees.
Consequent Proliferation of Meme Coins
Following the Dogecoin and Shiba Inu cases, such assets became a growing phenomenon, especially since there were plenty of internet sources to use for their basis, e.g., Pepe Coin (2023). While the proliferation of such coins underscores the appeal of community-driven tokens, it also affects volatility and risk. Since these tokens are reliant on hype rather than being backed by something substantial, they have to keep competing against more and more passionate communities, making them most popular with crypto newbies or risk-takers.
As mentioned above, the community is at the core of every meme coin since it is the hype that keeps the relevance and the value of these projects afloat. Their communities are often driven by their enthusiasm and sense of belonging, as well as their humor, promoting the token across social media platforms. Additionally, the decentralized, internet-based nature means that technically anybody can create and promote their coin and create a community around it.
In this case, social media isn’t just a communication channel—it is a platform for speculation and hype-building campaigns. Each platform might target a different audience, with Twitter being more geared toward a general audience, while Reddit targets those who are particularly into the crypto niche. This online culture and collective hype are also behind the ability of meme coins to see exponential growth overnight and plummet just as quickly in case of anti-hype or loss of interest.
For investors, and in particular, those who consider investment seriously, the reliance on social media makes meme coins a speculative venture that requires constant vigilance and following online trends, and is almost always not the main investment.
Meme coin investing risks can include:
- High Volatility: Though volatility is characteristic of crypto in general, meme coins are especially notorious for extreme and frequent price swings. A single social media post or trend can send prices skyrocketing or plummeting in hours.
- Susceptibility to Scams: Since most meme coins are not backed up by anything and lack transparency, investors of such assets can be subject to scams, especially if it’s a new token that suddenly comes to attention.
- Lack of Utility: Unlike traditional cryptocurrencies, most meme coins do not have any underlying technological value and exist first and foremost for fun, depending entirely on current hype.
Tips for Navigating Meme Coins:
- Do Your Research: If you do decide to invest in something like this, do a little investigating to understand if there’s a passionate enough community behind the coin.
- Stay Updated: Try to keep up with social media trends and community forums, especially for memes with steadily rising communities.
While both meme coins and traditional cryptocurrencies rely on blockchain for functioning, they are significantly different in purpose, functionality, and value alike. Here are some of the key distinctions:
Difference in Purpose
While traditional cryptocurrencies are created with specific functionality in mind (e.g., Bitcoin as a digital store of value or Ethereum as a decentralized application platform), meme coins are mostly a humorous statement, so in most cases there is technically no underlying utility beyond the appeal of a particular meme coin community.
Utility in Industries
While traditional cryptocurrencies offer services that enable real-world applications, they help facilitate anything from smart contracts to international transactions, while meme coins don’t offer any functionality per se and are almost entirely tied to on-market demand.
Volatility Over Time
Although still prone to volatility, traditional cryptocurrency prices are often easier to track and predict based on supply, demand, and market conditions. Meanwhile, meme coins are highly unpredictable, with prices often dictated by viral trends, influencer endorsements, and online hype.
Community Dependence
While community and online demand are still undoubtedly important for traditional cryptocurrencies, their value lies first and foremost in technological innovation. By contrast, meme coins couldn’t hold up without community and social media—without their hype, they would quickly lose relevance and, therefore, value.
Can meme coins have any real-world applications or uses?
However, as we mentioned in the main body of the blog, the majority of meme coins lack the functionality of traditional cryptocurrencies, some of which have been integrated into tipping systems via social media and even used for fundraising efforts. For instance, Dogecoin has been used to fund charity events and even support internet culture initiatives. However, it would still be wrong to assume that meme coins offer the same scope of real-world utility as purpose-driven cryptocurrencies.
How do meme coins affect the broader cryptocurrency market?
Meme coins may add a layer of volatility to the market as they experience quick and frequent price swings due to hype even more than regular crypto. In those instances when meme coin surges, it can temporarily draw investor interest away from more stable projects, influencing the liquidity of other assets as a result. It can also affect the market by bringing several newcomers into crypto based on a particular hype, though it risks reinforcing the speculative nature of the crypto industry.
What’s the role of “burning” in the meme coin space?
Some meme coins use token “burns” to create an artificial scarcity effect to try and boost the coin’s value. We already described the most famous example of Shiba Inu’s token, when they sent a significant amount over to Vitalik Buterin, Ethereum co-founder, who ended up burning it. While it is true that this can end up generating hype, as it did in the case with Shiba Inu, it’s important to know that it is not most of the time sufficient to boost the public’s interest and requires having a community before that or building it straight up during the hype.
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