The investor’s guide to Memecoins

The year was 2013: the first major cryptocurrency boom.

Bitcoin started the year around $13 and skyrocketed to $1,100 by December. In response, many entrepreneurs began launching alternatives to bitcoin – Litecoin, Ripple, Peercoin – with their own “altcoins” that quickly made millions.

In the midst of this madness, two guys pulled off the world’s most valuable prank.

Billy Markus was an IBM software engineer and Jackson Palmer was a developer at Adobe. Since all of these new altcoins were based on open source code, it was simple for the two to launch their own version of Litecoin, change a few variables, and call it Dogecoin.

It was a parody of everything in cryptocurrencies: a token with no good use, with ridicule Doge meme as a mascot.

But the joke was on them: people started buying DOGE, taking the nearly worthless token from $0.00026 to $0.00095. Billions of Dogecoins were traded every day: a month after its launch, Dogecoin briefly traded more than all other cryptocurrencies combined.

Today, their parody coin has a real market capitalization of $21 billion, making it the most valuable joke in the world.

Two words: stay away

Today, of course, there are half a million memecoins, all trying to replicate the success of Dogecoin. Usually these, like Dogecoin, start trading at a fraction of a cent. Even for sophisticated investors there is a temptation to buy a big pile of meme-themed coins.

But our investment strategy can be summed up in two words: stay away.

Memecoins are like penny stocks: even a small price movement can make you feel rich. “All I need is for the price to double.” Memecoins are powered by:

• The fear of losing something: When you see the latest memecoin bull run – like Solana’s surge this year – it’s tempting to make a quick buck.
• The call of nostalgia: Memes are fixed in our brain (that’s what makes them memes). If you see a familiar or funny meme, it puts a friendly face on an essentially worthless token.
• The attraction of the community: Memecoins must have online communities to proliferate, and those forums can become echo chambers that delude you into believing the coin has real value.
• The thrill of gambling: It’s exciting to know that your investment can not just double or triple, but even 1000 times. A lot of time and money is wasted this way.

Do people make money with memecoins? All time. But you can also make money in gaming rooms. Investing in memecoins is a game of chance.

Stay away.

Memecoins do not create value

Our approach to investing: Cryptocurrencies are like businesses and tokens are like stocks. (Read more here.)

We invest in companies that provide useful products or services. Tesla makes cars; Apple makes computers; Starbucks makes coffee. These companies produce value that advances society (transportation, productivity, and caffeine).

We invest in things that create value.

We even call it “value investing”: finding valuable companies and then holding onto their shares for the long term. (Investing in cryptocurrencies works the same way, except we buy and hold the token.)

Memecoins do not create value. There is no product, no service. They’re not trying to create anything useful or change the world in any meaningful way. They’re not trying to do anything… except make some easy money.

Some argue that memecoins provide entertainment, just as the gambling industry claims they provide entertainment. Which just proves the point: memecoin = gambling.

Investing, on the other hand, is fundamentally different from gambling:

• Gamble he is throwing our money away in a game rigged to make us lose in the long run.
• Invest is investing our money in valuable businesses that we believe can win in the long term.

Memecoins are gaming casinos, cleverly disguised as cute and funny mascots. Stay away.

Memecoin Fund Blockchain

So while memecoins have no place in the smart investor’s portfolio, they do serve a useful role, and that is moving money.

Let’s take Solana, which is faster and cheaper than Ethereum: memecoins exploded on that chain in 2024. Someone even created a project to allow users to easily create their own memecoin with just a few clicks, resulting half a million new memecoins this year.

All this money transferred to Solana has positive benefits for the blockchain itself. Increased network activity leads to higher transaction fees and better network security.

It also provides Solana with greater visibility. More users lead to more developers, which leads to more useful projects. And there are definitely more news articles about Solana.

So, while we can say that memecoins are bad for individual investors, they could be useful for moving “dumb money” to a place where it can be used for smart projects.

But do you really want your blockchain to be gambling-based?

The stench of Memecoins

When the gambling industry tries to move to a new city, it always uses the same argument: gambling creates jobs.

It’s true: all those gamblers need room, board and nightclubs. And the casinos themselves need waitresses serving cocktails and room managers. Gambling creates jobs, just like memecoins build blockchains.

But once the stench of gambling is introduced into a community, it never really goes away. The same, I believe, applies to blockchains built on memecoins.

Since your initial user base is there to bet, not to create value, it’s difficult to pivot towards creating real value. The community and culture are already built around the casino.

So while memecoins are attractive not just to investors, but to blockchains themselves, it’s the same deal with the devil as communities trying to boost growth by introducing casinos. Ultimately, what type of citizen are you trying to attract?

It’s hard to wash away the wet dog smell.

Two words: stay away

Memecoins are tempting because they creep into the simian part of our brains. Cats and dogs, inside jokes and the thrill of gambling – it’s a potent cocktail for losing money.

We always say “this is not investment advice”, but this is the rare case where it is investment advice: stay away from memecoins.

Notes for Memecoin Investors:

• Stay away.
• Stay away.
• Stay away.

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