In recent years, a new and peculiar trend has taken the world of cryptocurrencies by storm: meme coins. These digital currencies, often inspired by internet memes or pop culture references, have gained immense popularity and captured the attention of both seasoned investors and casual enthusiasts. But what exactly are meme coins, and why have they become the talk of the town?
What Do Meme Coins Entail?
Meme coins, which draw inspiration from internet and social media memes and jokes, have gained prominence, with Dogecoin (DOGE) being the inaugural meme coin created in 2013. Initially launched as a parody, this cryptocurrency found its roots in the beloved Doge meme featuring a Japanese Shiba Inu dog.
Notably, meme coins exhibit a strikingly high level of volatility. Their value is predominantly steered by community engagement, often skyrocketing overnight due to enthusiastic online endorsements and the pervasive fear of missing out (FOMO). However, these coins can also experience abrupt declines in value when traders shift their focus to the next trending meme coin.
Another distinguishing feature of meme coins is their tendency to boast immense or limitless supplies. For instance, Shiba Inu (SHIB) boasts a total token supply of a staggering 1 quadrillion, whereas DOGE lacks a maximum supply cap, with over 100 billion tokens already circulating. The absence of a coin-burning mechanism in meme tokens contributes to their comparatively modest price levels, making it possible to acquire millions of these tokens with just a fair sum of $1 USD.
What is The Reason Behind The Popularity of Meme Coins?
While pinpointing specific causes may prove challenging, some argue that during the COVID-19 pandemic, the cryptocurrency market experienced growth as a result of retail investors seeking a means to safeguard their assets against the effects of inflation. This surge was further fueled by the flourishing popularity of meme coins, which not only diversified in terms of variety but also witnessed substantial increases in market capitalization.
The origins of this phenomenon trace back to the “meme stock” saga involving GameStop (GME) and AMC Entertainment (AMC) in late 2020. During this period, the Reddit community orchestrated remarkable price surges, inflating these stocks’ values by as much as 100 times within a few months. By January 2021, a Reddit group humorously contemplated boosting the value of DOGE, envisioning a crypto counterpart to the GME craze. This concept gained traction, aided by Tesla CEO Elon Musk’s influential tweets, propelling DOGE’s price to an unprecedented all-time high of $0.73 USD. In just five days, it surged by an astounding 2,000%.
However, in May 2021, Elon Musk made a public jest about DOGE on television, a moment that many attribute to the subsequent decline in its price. Consequently, numerous traders turned their attention to other meme coins available in the market, particularly the “Dogecoin killer” SHIB. Simultaneously, retail investors succumbed to the fear of missing out (FOMO), fervently diving into meme coins with aspirations of instant millionaire status, thus igniting another meme coin rally.
One additional factor contributing to the appeal of meme coins among retail investors is their typically low unit cost, often amounting to mere cents or fractions thereof. While the nominal price may not inherently hold substantial significance due to the large coin supplies, the sensation of owning millions of a particular meme coin differs markedly from possessing a fraction of ETH or BTC. Traders can amass thousands or even millions of DOGE, SHIB, or Akita Inu (AKITA) tokens with just a few dollars.
Beyond the potential financial gains, the enthusiasm for meme coins is equally driven by the sentiments within their respective communities. As previously noted, meme coins derive inspiration from popular internet memes and often serve as a form of fun or an “inside joke” for their community members. Investing in meme coins can be viewed as an act of solidarity with these communities. Following the GME stock market saga, meme coin traders, inspired by the Reddit group SatoshiStreetBets, initiated a “David vs. Goliath” showdown, symbolizing a challenge to the mainstream cryptocurrencies. Consequently, the crypto market of 2021 experienced a deluge of meme coins propelled by community-driven passion.
Possible Risks Associated With Investing in Meme Coins
Meme coins, despite experiencing exponential growth in 2021, pose substantial financial risks when it comes to trading and investing.
To begin with, meme coins raise concerns due to their tokenomics. A prime illustration of this can be found in Bitcoin, which boasts a well-established blockchain, a meticulously crafted whitepaper, a thriving ecosystem, and a deflationary structure. Recent years have witnessed increased institutional adoption of Bitcoin as well. In stark contrast, most meme coins follow an inflationary model, often lacking a maximum supply. Their ecosystem, utility, and underlying principles are typically shaped by the whimsical humor of the community. Few meme coins are actually built on the technology foundations of major cryptocurrencies; for instance, DOGE draws from Litecoin (LTC), while SHIB operates on the Ethereum blockchain.
Moreover, meme coins heavily rely on community enthusiasm and are more speculative in nature compared to cryptocurrencies with larger market capitalizations. This heightened volatility frequently results in unexpected price surges and collapses. The typical lifespan of meme coins tends to be short-lived, with prices skyrocketing, thanks to celebrity endorsements or FOMO (Fear of Missing Out), only to crash suddenly when the community shifts its focus to the next meme coin.
With the continued expansion of the meme coin market, it’s crucial to recognize the possibility of projects exploiting the hype to defraud traders. A notable example is Squid Game (SQUID), inspired by the popular Netflix series of the same name, which witnessed an astounding 86,000% surge in just one week. However, the development team executed a sudden rug pull, resulting in a 99% price collapse. Even more disconcerting, holders were prevented from selling their SQUID tokens. Hence, it’s imperative to exercise caution and conduct thorough research (DYOR) before engaging in meme coin trading or investment activities.
A Summary of Widely Recognized Meme Cryptocurrencies
Emerging as the dominant players in the meme coin market, Dogecoin (DOGE) and Shiba Inu (SHIB) hold the top positions in terms of market capitalization. Following the remarkable achievements of DOGE and SHIB, a plethora of dog-themed meme coins made their debut in the market, garnering significant attention during the latter half of 2021.
Dogecoin (DOGE) came into existence back in 2013 thanks to the collaborative efforts of software engineers Billy Markus and Jackson Palmer. This digital currency drew its inspiration from the popular Shiba Inu dog meme and was initially conceived as a humorous cryptocurrency with the primary aim of capturing the interest of the broader public. Being a derivative of Litecoin (LTC), DOGE shares the same Proof of Work (POW) protocol, and unlike some cryptocurrencies, it does not impose a maximum supply limit.
Shiba Inu (SHIB)
Shiba Inu (SHIB) is frequently dubbed the “Dogecoin killer” as it stands as a formidable competitor to DOGE. Its moniker draws inspiration from the Japanese dog breed, and its inception in August 2020 can be attributed to an enigmatic developer named Ryoshi. Notably, the key distinction between DOGE and SHIB lies in their token supplies, with the latter boasting a finite pool of 1 quadrillion tokens, half of which were incinerated and contributed to charitable causes. In addition to this, the SHIB ecosystem encompasses various components, including a decentralized exchange, an NFT art incubator, a selection of NFTs, and even an NFT-based game.
Another newly introduced meme coin that took advantage of the market surge was SafeMoon (SAFEMOON). This particular cryptocurrency is a BEP-20 token that made its debut on the BNB Smart Chain (BSC) back in March 2021. One unique aspect of SAFEMOON is its incentive structure for long-term investors, achieved by imposing a 10% exit fee on those who decide to sell their tokens. Remarkably, half of these exit fees are redistributed to existing SAFEMOON holders, while the other half is permanently removed from circulation through a process called “burning.” After experiencing a significant surge in April, SAFEMOON captured the attention of retail investors. As of November 2021, CoinMarketCap reports a remarkable return on investment (ROI) of 9418.54% for SAFEMOON.
As an increasing number of meme coins continue to flood the market regularly, and traders aspire to emulate the successes achieved by DOGE and SHIB, it becomes essential to conduct your own research (DYOR) before considering any involvement with meme coins. It is crucial to remember that meme coins exhibit significantly higher levels of volatility when compared to other cryptocurrencies. Engaging in cryptocurrency trading or investment carries substantial risk, and it is imperative to acknowledge that meme coins predominantly depend on community support, making them susceptible to unforeseen crashes. Consequently, it is advisable to avoid investing more than you can comfortably afford to lose.