A case study in the power of community and FOMO

Ten years ago, two programmers created a “fun and friendly online currency” as a joke to poke fun at the emerging hype around cryptocurrencies. Little did they know that their meme-based “dog” coin would give birth to a new category of cryptocurrencies known as memecoins.

Over 150 memecoins are actively traded today, with estimates suggesting that more than 400 exist. Even though many of them have fallen into oblivion, the market capitalization of memecoins stands at around $18 billion.

Let’s delve into what memecoins are, their value, their role in the current bull cycle, and how the Fear of Missing Out (FOMO) effect drives the success of some memecoins.

What are meme coins?

Memcoins are cryptocurrencies based on popular internet memes. This is a vivid example of a financial asset that has no fundamental value and grows in value only due to the interests of community members.

The first memecoin, Dogecoin (DOGE), appeared thanks to Elon Musk’s favorite meme featuring a Shiba Inu dog. At the end of 2013, Dogecoin was traded on cryptocurrency exchanges at a price of $0.0003-7, in mid-2018 the coin’s exchange rate surpassed $0.01 for the first time, and in May 2021 it briefly reached $0.74. At the time of this writing, DOGE’s market capitalization was approximately $14 billion. This means that the project is worth more than the American technology company Dropbox.

Main characteristics of memecoins

Memcoins have several characteristics that distinguish them from other cryptocurrencies. Here are some of them:

• Unique approach. Memcoins usually do not have their own blockchain but are created on the basis of existing platforms, such as Ethereum or Binance Smart Chain. This makes them easier to launch and deploy, but it also means they don’t offer new solutions or technological innovations. Their main value lies in their unique design, name and concept, which attract attention and evoke emotions among users.
• High volatility. Memcoins are subject to strong price fluctuations that depend on various factors such as news, tweets, rumors, supply and demand. Their prices can rise or fall by hundreds or thousands of percentage points in a short period of time, making them very risky but also potentially profitable investments. For example, on May 8, 2021, during Elon Musk’s appearance on Saturday Night Live, DOGE’s price dropped 30% after he called it a “hoax.” On October 10, 2021, after Musk posted a photo of his dog Floki Inu, the price of Floki Inu increased by 1000% in just a few hours.
• Strong community. Memcoins rely heavily on fans and supporters, who create and maintain their popularity. They actively participate in social media, forums, chat rooms and other platforms where they share memes, information, advice and support. They also organized various promotions, contests, airdrops and charity campaigns to attract new users and strengthen their reputation. For example, in 2014, the Dogecoin community raised over $50,000 to sponsor the Jamaican bobsled team’s participation in the Sochi Olympic Games. In 2021, the Shiba Inu community donated more than $1 billion. to fight Covid-19 in India.
• Humor. Memcoins do not claim to be serious and do not set their global goals. These were created for entertainment, jokes and parodies. They often use irony, sarcasm, overestimation or underestimation of their values ​​and potential. They also like to make fun of other cryptocurrencies, especially those considered competitors or antagonists. For example, Shiba Inu calls himself a “Dogecoin killer” and an “experiment in a decentralized spontaneous community.” And Dogelon Mars promises to “conquer the entire galaxy” and “create an interplanetary currency.”
• High risk. Memcoins carry significant risks for both investors and developers. Investors risk losing all their funds due to a sharp price drop, hacker attacks, liquidity leaks, smart contract failure, or other unforeseen circumstances. Developers run the risk of facing legal problems, accusations of fraud, criticism or boycotts from the community or regulators. For example, in 2018, Dogecoin creator Jackson Palmer abandoned the project and the cryptocurrency industry as a whole, saying he had “lost faith” in them due to “toxicity, greed and manipulation.” . In 2021, the creator of Shiba Inu, known by the pseudonym Ryoshi, was accused of being the “hidden owner” of the project and receiving undeserved profits from its growth.

As you can see, memcoins have advantages and disadvantages that need to be considered when making investment decisions. In the next part of this article, we will look at four very popular memcoins to date.

The influence of FOMO

FOMO, or fear of missing out, is a psychological phenomenon that plays a significant role in the success of memecoins. As investors witness the meteoric rise of some meme coins, they are gripped by the fear of missing out on potential gains, leading them to invest in these assets and further fuel their growth.

However, the power of FOMO in the cryptocurrency market cannot be understood. When a memecoin begins to gain traction through social media buzz, celebrity endorsements, or viral marketing campaigns, it creates a sense of urgency among investors. The fear of missing out on the next big thing pushes more and more people to invest, creating a self-sustaining cycle of hype and value appreciation.

The scarcity of memecoins, combined with the speculative nature of the cryptocurrency market, intensifies this phenomenon. With an increasing number of investors joining this trend, demand for these assets increases, causing prices to rise and perpetuating the Fear of Missing Out (FOMO) effect.

While FOMO accelerates the initial rise of memecoins, it can also result in asset bubbles and significant market volatility. As more investors succumb to FOMO and get on board, the value of these assets may deviate from their true value, increasing the risk of sudden crashes and financial losses.

The importance of strong community support

While FOMO plays a significant role in the initial success of meme coins, their long-term sustainability often depends on the strength of community support. Meme coin projects that foster a vibrant and engaged community tend to have a higher chance of success as these communities become evangelists for the project, driving adoption and creating a sense of loyalty among investors.

Strong communities can also contribute to the development and evolution of meme coin projects by providing feedback, suggesting improvements, and even contributing to codebases or marketing initiatives. This collaborative approach not only strengthens the project but also fosters a sense of ownership among community members, further solidifying their commitment to the project’s success.

While strong community support can be a boon for memecoin projects, it can also pose risks. In some cases, communities can become echo chambers, amplifying hype and potentially leading to irrational decision-making. Additionally, the decentralized nature of these projects can make it difficult to implement changes or resolve issues in a timely manner.

Case Studies: Dogecoin e Shiba Inu

No discussion of meme coins would be complete without mentioning Dogecoin and Shiba Inu, two of the most prominent examples of community power and FOMO.

Dogemoneta

Dogecoin (DOGE) is by far the most famous and successful member in cryptocurrency history. It was created in 2013 as a joke, a parody of Bitcoin and a cryptocurrency boom. Its logo was an image of a Shiba Inu dog, which became a popular Internet meme. Since then, Dogecoin has grown to become one of the largest cryptocurrencies in terms of market capitalization, reaching the $88 billion mark in May 2021. Its price reached a record high of $0.74 per coin. One of the main factors in the growth of Dogecoin has been its active promotion by Elon Musk, who has often mentioned it in his tweets and interviews with him. Dogecoin also has a large dedicated community that supports its popularity and humor. Dogecoin is used as a medium of exchange and donations on the Internet, as well as a means of financing various charitable sports projects.

Shiba Inu

Shiba Inu (SHIB) is a self-proclaimed memcoin killer of Dogecoin. It launched in August 2020 and uses an image of a Shiba Inu dog as its logo. However, unlike Dogecoin, Shiba Inu has a very large number of coins in circulation: one quadrillion (1015), of which 50% were sent to the wallet of Vitalik Buterin, co-founder of Ethereum. It was designed to create a supply shortage and increase demand for coins. However, in May 2021, Buterin decided to donate around 50 trillion SHIBs (worth over $1 billion) to fight COVID-19 in India, leading to a 50% drop in the coin’s price. Shiba Inu also aims to create its own ecosystem from various tokens, a decentralized exchange (DEX), and non-exchangeable tokens (NFT). Its market capitalization currently stands at approximately $3.6 billion.

Risks and challenges

Investing in members carries significant risk for both investors and developers. Investors risk losing all their funds due to a sharp price drop, hacker attacks, liquidity leaks, smart contract failure, or other unforeseen circumstances. Developers run the risk of facing legal problems, accusations of fraud, criticism or boycotts from the community or regulators. Therefore, before investing in memcoin, you need to consider the following factors.

1. Do your research on the project, the team and the market conditions.
2. Evaluate the real value and functionality of members
3. Be aware of your responsibilities in accordance with the regulations of your jurisdiction.
4. Diversify your portfolio by investing in different members and projects.
5. Don’t invest more than you can afford to lose
6. Don’t give in to panic or greed, always miss stop loss orders when it comes to marginal trading.
7. Be prepared for possible losses.

Conclusion

Memecoins are a notable and divisive trend in the cryptocurrency world, created for entertainment and parody but also used for transactions and charitable purposes. They offer both potential gains from speculation and the risk of losing your investment completely.

To navigate this volatile market, stay informed through social media and news sources and consider memecoin mentions from influencers. Treat meme coin investing like a form of gambling, risking only what you can afford to lose. It may be wiser for most investors to focus on assets with stronger fundamentals.

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