Memecoins
What are meme coins? Is it worth investing? – Forbes Advisor
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If you look up the word “meme” in the dictionary, it is a funny image, video, or piece of text that is copied, usually with slight variations, and spread rapidly by Internet users.
Meme coins are not much different from the definition of meme described in the dictionary: they are nothing more than cryptocurrencies that internet memes and jokes have inspired.
Should you invest in meme coins? While some are classified among the the best cryptocurrencies by market capitalizationPotential buyers should understand that most meme coins offer little value and that some are outright scams.
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What are meme coins?
Meme coins are cryptocurrencies produced as a lighthearted joke. However, some meme coins have increased in value, reached multibillion-dollar market capitalizations, and gained celebrity endorsements.
While these characteristics suggest that meme coins offer some underlying utility or value, the truth is that almost all of them lack something like core value or unique use cases.
Instead, cryptocurrency investors often purchase meme coins to be part of a community or for entertainment value. The only use case for most meme coins is pure speculation.
“Meme coins are designed like any other cryptocurrency, like Bitcoin or Ethereum,” says Bryan Hernandez, co-founder of trading and investment platform Structure.fi. “The difference is that their existence tends to be centered around a viral moment or a fun idea, and their value depends largely on how much momentum that concept can generate.”
The original meme coin: Dogecoin
The original and most important meme coin is Dogemoneta (DOGE). Created in 2013 by software engineers Billy Markus and Jackson Palmer, DOGE was branded around a popular meme: the “doge” Shiba Inu dog.
The founders say they created Dogecoin to make fun Bitcoin (BTC). The name “doge” is a deliberate misspelling of “dog,” and the founders admit that they chose this name to ensure the cryptocurrency was “as ridiculous as possible.”
But in what would become a hallmark of other meme coins to follow, Dogecoin began to make a name for itself thanks to a fervent community of users, amassing something of a cult status.
For example, when the Jamaican bobsleigh team qualified for the 2014 Winter Olympics in Sochi, Russia, but was unable to fund the trip, the Dogecoin community came together to raise around $30,000 for the cause.
The story was picked up by major media outlets, helping to gain further investors and influence.
But it wasn’t until celebrities started endorsing Dogecoin that the price skyrocketed. The highest-profile promoter of the coin is Tesla CEO Elon Musk.
The enigmatic billionaire has continuously promoted Dogecoin. Musk also appeared in a “Saturday Night Live” skit in which he referred to himself as the “Dogefather.”
At its peak, Musk’s endorsement propelled Dogecoin to a market capitalization of $88 billion in May 2021 and became a pop culture phenomenon.
When a celebrity endorsement disappears, these cryptocurrencies can plummet. Today, Dogecoin’s market capitalization is worth just a tenth of its all-time high from more than a year ago.
Other popular meme coins
Dogecoin still serves as inspiration for meme coins. Since the launch of the original meme coin, more than 200 such coins have been created.
Shiba Inu (SHIB) launched two years ago as the “killer Dogecoin”. The cryptocurrency even mimics the Dogecoin brand as it uses the same Shiba dog. SHIB has also seen meteoric growth, reaching a market capitalization of $41 billion in October 2021.
Numerous other meme coins have been created in hopes of creating their own communities and sky-high valuations, but this year prices across the market have returned to normal, with meme coins among the hardest hit.
Dogecoin is down 60% in 2022, Shiba Inu is down 64%, while many of the smaller meme coins have fallen to zero and are being abandoned.
How do meme coins work?
The barriers to entry are extremely low for meme coins.
The open-source nature of the blockchain technology behind these cryptocurrencies means that creators can simply “fork” existing cryptocurrencies – essentially copying and pasting the underlying blockchain – and launch them online by changing something as small as the name or logo.
“A meme coin is simply a cryptocurrency, so it can be created easily with a few lines of code,” explains Tauhid Zauman, an associate professor at the Yale School of Management. “The coin can create its own blockchain or live on an existing blockchain.”
According to Zauman, meme coins are usually promoted by their creators on social media platforms to create initial hype and increase the price. After that, the price could continue to rise if the coin manages to create a strong community.
With the rising market The hysteria has pushed prices vertically across the market, many meme coins have been created to try and take advantage of this craze.
Should you invest in meme coins?
For every Dogecoin, there are many other meme coins that have left retail investors heavily underwater.
Dogecoin also fell 91% from its all-time high, while Shiba Inu fell 84%. Both still have market capitalizations of $8.7 billion and $6.5 billion, respectively.
Unlike Bitcoin, which has a maximum limit of 21 million coins, meme coins often have a high or unlimited supply.
There are more than 135.5 billion DOGE coins in circulation and every minute a successful miner receives around 10,000 DOGE, worth around $660. This is a staggering contrast in issuance volume compared to Bitcoin, where approximately 6.25 BTC are mined every 10 minutes, worth approximately $143,000.
Additionally, meme coins typically do not have mechanisms like “burns” that remove coins from circulation, so the number of coins in circulation continues to increase. Shiba Inu, for example, has more than 590 trillion coins in circulation, as of this writing.
Shiba Inu and Dogecoin are considered success stories among meme coins. The fact is, most meme coins eventually fade away.
“No one remembers the names of Dogecoin’s peers from 2013-2014, who now trade nowhere and have eviscerated untold amounts of speculators’ money,” says Jonathan Zeppettini, head of international operations at Decred.
“We tend to focus only on the winners and ignore the fact that those victories are extremes.”
While the evidence seems to be piling up against meme coins turning into the next Dogecoin or Shiba Inu, the silver lining and extreme “fear of missing out” was most evident during last year’s bull market hysteria.
But that doesn’t stop retailers from trying to get rich. It remains important, however, to consider them more as bets than investments.
“Most meme coins have gone to zero or failed to take off at all,” says Nick Saponaro, CEO of blockchain startup The Divi Project. “Meme coins should be considered a roll of the dice and those who invest their money in these speculative assets should do so on the assumption that they will lose everything they invest.”
Are meme coins safe?
Although memes are marketed as fun and lighthearted, there can be a dark side to cryptocurrency editions.
Not only are prices extremely volatile, with many meme coins dropping 99% or even to zero in the current bear market, but there are many accusations of foul play and bad intentions against the creators, who are often anonymous.
Zeppettini highlights several incidents where founders have been known to “create new coins, control 100% of the supply right out of the gate, and then focus solely on building hype so they can unload their inventory.”
“Buyers of these tokens may be unsuspecting retail participants who may not fully understand the underlying dynamics of the token in question but only see paid celebrity endorsements on social media or bot-driven activity that makes it appear as if the asset is trend,'” he says.
This isn’t the only concern. Many meme coins are often owned by a small group of people who own large concentrations of them. According to data from IntotheBlock, 48% of DOGE is controlled by seven crypto wallets. This number is even more evident for SHIB, where 69% of ownership is concentrated in 15 portfolios.
With such high concentration, a large investor could manipulate the market with their position or cause the price of the coin to collapse when they cash out their holdings.
Although making money with meme coins is technically possible, it is not a sure thing. These cryptocurrencies are subject to more volatile factors than traditional cryptocurrencies like Bitcoin and Ethereum, and the value of a meme coin can plummet overnight.