What Are Meme Coins? Are They An Investment Or Gambling?
It’s been a few years since I wrote daily crypto news articles. I’ve kept abreast of the industry, and there are a lot of similarities between crypto 2024 and crypto 2019.
Bitcoin is still the one to rule them all. Regulation remains an important topic. It’s still virtually impossible to spend cryptocurrency outside the U.S. Mt. Gox creditors are still waiting on their money and Warren Buffett still hates Bitcoin.
But a lot has changed, too. Sadly, there’s no John McAfee, who used to virtually write his own headlines. There are proper Bitcoin spot ETFs, which have attracted considerable sums from major investors. Crypto casinos are commonplace, thanks partially to Dogecoin, which used to be a joke but is now one of the 10 largest cryptos. And then there is the recent rise of meme coins, many of which are built on the Solana platform: the world’s 5th largest cryptocurrency that didn’t publicly exist 5 years ago.
What Are Meme Coins?
Of the changes, meme coins have really caught my attention lately. And, looking at the market for these unusual cryptocurrencies, I’m not the only one whose interest has been piqued.
Meme coins are cryptocurrencies that typically have no utility. They are based on popular memes or online jokes and their only use is for trading. Their popularity is based primarily on the popularity of the meme itself, but also on the community of people that buy into the meme. The aim is to have them go viral to push up their price.
Some of these cryptos, like Dogecoin, have seen some limited uses since their launch. Dogecoin, specifically, has become popular with crypto casinos. And you can spend it on the Tesla website, although you can’t buy a car with it just yet.
Volatility
If the currency does go viral, the community buys more of the coins which pumps the price up. When its popularity dwindles, its price can drop as quickly as it rose.
Get in before the rise, and out before the drop, and it is possible to make very good money because the low prices of these coins mean it isn’t uncommon for them to increase 1,000% or more in a short time. Buy and sell at the wrong time, though, and it’s possible to lose pretty much everything.
Popular Meme Coins
I’ve mentioned Dogecoin a lot. It was the first meme coin and remains the most popular today. But, it isn’t alone. There are currently 8 meme coins that feature in CoinMarketCap’s list of the top 100 cryptocurrencies, ranked by market capitalization.
Coins use their own independent blockchain, whereas tokens operate on an existing blockchain. Dogecoin is a meme coin because it has its own network, although it was initially based on the Litecoin network. Shiba Inu, the second largest meme currency, is a meme token because it uses the Ethereum network. However, the terms coin and token are used interchangeably for the most part.
I’ll publish a piece looking at some of the more notable meme coins in greater detail in the future, but here are the top 8 meme currencies and which networks they operate on.
The Rise Of Solana
It isn’t surprising to see Ethereum, the second-largest cryptocurrency and blockchain network in the world, feature highly on the list. But Solana is a little more surprising. Or it would have been to 2019 me.
Five years ago, Solana didn’t really exist. Solana’s founder, Anatoly Yakovenko, published the first draft of a whitepaper back in 2017. The whitepaper detailed an automatic transaction ordering process that would speed up blockchain transactions. A final whitepaper was published by Yakovenko, and his colleague Greg Fitzgerald, in 2018, and the newly formed Solana Labs, Inc. went on to secure $20 million in funding from private token sales.
In 2020, the SOL cryptocurrency went public. Since then, the company has gone on to manufacture and sell out a mobile phone, has been used by Google Cloud and Circle, and has been integrated into Shopify’s merchant payment system. It has also been used to launch NFT collections and has become the go-to solution for launching meme coins.
Today, it is the fifth-largest cryptocurrency, and part of its success is down to a growing number of meme coins using its network.
According to Forbes, there are 177 Solana-based meme tokens, and they have a total market capitalization of $9.96 billion. That’s around 0.36% of the whole cryptocurrency market — not bad for a bunch of “joke” tokens built on a single network.
Solana has proven popular because its network is fast and cost effective, compared to others. Starting a meme coin on Solana is also easy enough that anybody can do it, and the process is detailed in this Reddit thread. Reddit user bebaszna spent 2 SOL to set up the EXAMPLE meme currency with 10,000 tokens ready to go. At the current exchange rate, that’s about $335. You can do it for less or you could certainly spend a lot more, but a $335 price tag to potentially establish the next big cryptocurrency is not a big investment. It’s easy to see why it’s so tempting.
The Dangers Of Meme Coins
While Forbes lists fewer than 200 meme coins, Coinmarketcap has details of 2,362 of these crypto tokens.
Huge Risk
While some like Dogecoin, Shiba Inu, and Pepe see around $1 billion traded every day, the vast majority of coins have little to no trading volume. Because they are so easy, and comparatively inexpensive, to set up, people and small groups spit masses of them out. They might be traded for the first few days, but interest quickly dies away. That leaves anybody who has invested with a ton of worthless tokens that will not only fail to make money but likely lose any value they ever held.
Pump-And-Dump Schemes
Meme coins have also been described as pump-and-dump schemes. This means that the token is set up and then shilled on social media. This gathers interest from others, who buy into the token, pushing its value up. When the value rises enough, or it seems like interest is dwindling, the original creators dump their coins, forcing the value to plummet, leaving other investors with worthless coins.
They Degrade Legitimacy
The cryptocurrency market’s long-term goal is to gain legitimacy as a form of currency and an investment vehicle. It has already proven an uphill struggle with big names like Warren Buffett and Bill Gates speaking out against the currencies.
Despite that struggle, Bitcoin ETFs were approved by the SEC in January 2024. Major investment groups have already got in on the act. Ethereum spot ETFs have also been approved, and they are likely to launch in the coming months. This not only brings more money to the cryptocurrency market but also enhances legitimacy.
Meme coins, with their reputation for wild volatility and the potential for being pump-and-dumps, degrade some of that hard-fought legitimacy.
A Form Of Gambling?
Governments and securities commissions have long been reluctant to recognize cryptocurrency as a viable investment channel. In fact, in May 2023, the UK Treasury Committee called for trading in unbacked crypto to be classified as gambling due to the lack of intrinsic value and the potential for scams. This matches the exact criticisms that have been leveled at meme coins.
No Utility
Many of the criticisms leveled at meme coins were the same judgments fired at cryptocurrency during its early days. Old-school investors claimed that Bitcoin lacked intrinsic value because it isn’t backed by any physical value.
Bitcoin aims to be a viable payment system. Other cryptocurrencies have much greater utility.
Ethereum is a framework that allows people and companies to establish decentralized applications, or dapps. Users use ether to pay to establish those apps. Therefore, the cryptocurrency has utility, as well as being used for trading. It is less susceptible to the massive price swings of meme coins because there will likely always be some demand for ether. Ether is still volatile, but its price is unlikely to fall away completely.
Conclusion
Meme coins are an interesting use of blockchain and cryptocurrency technology. They typically have no utility or intrinsic value. Their prices are driven solely by public sentiment, and the daily price can be driven by a single tweet.
Their incredible volatility means they have the potential to make brave investors a lot of money, but they carry considerable risk for the uninitiated. Anybody considering buying meme coins needs to ensure they do a lot of research. Determine who set the coin up, when, and why. Take a look at the history of the founders, and any group that might be backing them, and only ever use money you can afford to lose.
