The Rise of Meme Coins: A Beginner's Guide - Reading time: about 4 minutes
So you’ve never really understood meme coins? You’re not alone. Many crypto enthusiasts have a hard time understanding what meme coins stand for and why they should exist. Yet, a lot of users often trade, buy, or hold them. Regardless of what anyone thinks of them, several meme coins have been listed on major crypto exchanges because they’ve captured the attention of the crypto community at large. This article seeks to explore meme coins and focus on some of the reasons why they exist.
Meme coins have gained popularity recently, with more of these tokens emerging across various chains. These types of digital assets that derive their popularity and, therefore, their value, from memes—those representations of cultural information shared from one person to the other as a form of self-expression via the internet—are usually described as imitation. Their creation is often tied to a joke or an imitation of existing cryptocurrencies. Aside from that, meme coins have no real-world utility or use case beyond being traded on exchanges.
Some factors set meme coins—the most popular among which include Dogecoin, Shiba Inu, and SafeMoon—aside from other digital assets. They often have unique features such as high supply, high volatility, and unique distribution mechanisms. They are often popular among retail investors, who are drawn to the hype and potential for quick profits.
Some of the public figures that have been associated with meme coins in various ways include Elon Musk, the CEO of Tesla and SpaceX, who has been known to tweet about Dogecoin. Others identified with Dogecoin are Mark Cuban, the billionaire investor and owner of the Dallas Mavericks, and rapper, Snoop Dogg. There is also the co-founder of Ethereum, Vitalik Buterin, being associated with Shiba Inu, which was created as a joke on the Ethereum blockchain.
While their endorsements or opinions should not be taken as investment advice, these individuals have contributed to supporting these coins, allowed fans to purchase merchandise with them, and even caused sharp price movements in these meme coins’ value.
Generally, the crypto market is largely unregulated, which limits investors’ legal protections in the event of fraud and scams. Cryptocurrencies have also raised environmental concerns, as some of them require significant amounts of energy to mine and process their transactions. Meme coins come with additional potential problems and risks.
Some potential disadvantages of meme coins include the following:
They are highly risky because of their volatility. Their speculative nature and constant price fluctuations within short periods of time can result in huge gains or losses for investors.
Added to this are the legal and regulatory risks hovering over cryptocurrencies in general. Investors in meme coins are particularly exposed to the potential for fraud, scams, and market manipulation. Investors may be targeted by fraudsters.
Meme coins lack fundamental values but rather generate hype and buzz. It leaves their value to largely be based on speculation and media trends.
The highlighted shortcomings of meme coins have limited their acceptance, for example, as a form of payment like more established cryptocurrencies like Bitcoin and Ethereum.
Other main issues associated with meme coins include that they lack utility. Since they are often created as a joke, with little to no real-world use or utility, meme coins are basically traded on crypto exchanges based on speculative value. In addition, their volatility, price fluctuations, and high level of risk make meme coins attractive to groups of investors that perpetrate pump-and-dump schemes—artificial inflation of the price of an asset—before selling off their holdings at a profit.
Having said that, meme coins have been associated with wildly successful stories.
Looking at the upside, here are some of the advantages of meme coins:
Meme coins are easily accessible to a wide audience, as they are often designed to be easy to use. Their being available on popular crypto exchanges for purchase could get them into the hands of many for relatively small amounts of money.
These ‘joke’ coins often have dedicated communities that support the unique characteristics and culture their digital asset represents. These communities may help to drive adoption and increase the coin's value.
Meme coins have a lower barrier to entry than other cryptocurrencies, hence prospective holders may not necessarily require much technical knowledge or investment to participate in them. As such, they can be attractive to people that are new to crypto or to increase adoption.
Since meme coins can be highly volatile, they can lead to significant gains (or losses) in a short period to suggest their potential for rapid growth.
Meme coins are often highly speculative and can be risky investments, as their value can fluctuate wildly based on internet trends and other media-related buzz. At the same time, they can be accessible, build dedicated communities, boast low barriers to entry, and grow rapidly. Despite lacking a clear value proposition, long-term viability, or offer of high returns, it is important to know that meme coins need to be approached with caution. It is imperative to do as much research and understand the risks involved in meme coins before investing in them.