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’s a humorous image, video, or text that is copied, usually with slight variations, and quickly spread by Internet users.

Meme coins aren’t too different from this dictionary definition of a meme – they’re nothing more than cryptocurrencies that internet memes and jokes have inspired.

Should you invest in meme coins? While some are ranked among the top cryptos by market capitalization, potential buyers should understand that most meme coins offer little value, and a few are outright scams.

What are Meme Coins?

Meme coins are cryptocurrencies that were produced as a lighthearted joke. Nonetheless, some meme coins have exploded in value, gained multi-billion dollar market caps, 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, crypto investors often buy coins even to be part of a community or for entertainment value. The only use case for most meme pieces is pure speculation.

“Meme coins are designed like any other cryptocurrency, like Bitcoin or Ethereum,” says Brain Hernandez, co-founder of trading and investing platform Structure. “The difference is that their existence tends to be centered around a viral moment or a fun idea, and a lot of their value depends on how much momentum that concept can generate.”

The Original Meme Coin: Dogecoin

The original and most prominent meme coin is Dogecoin (DOGE). Created in 2013 by software engineers Billy Markus and Jackson Palmer, DOGE was branded around a popular meme: the “doge” dog Shiba Inu.

The founders say they created Dogecoin to mock Bitcoin (BTC). The name “doge” is a deliberate misspelling of “dog,” and the founders admit they chose that name to make sure crypto was “as ridiculous as possible.”

But in what would become the hallmark of other coins to follow, Dogecoin began to make a name for itself through a fervent community of users, racking up a bit of cult status.

For example, when the Jamaican bobsled team qualified for the 2014 Winter Olympics in Sochi, Russia, but couldn’t fund the trip, the Dogecoin community came together to raise about 30 $000 for the cause.

The story was picked up by the mainstream media, which gained more investors and influence.

But it wasn’t until celebrities started endorsing Dogecoin that the price skyrocketed. The most high-profile booster in the room is Tesla CEO Elon Musk.

The enigmatic billionaire has continuously promoted Dogecoin. Musk even appeared in a “Saturday Night Live” skit where he called himself the “Dogefather.”

At its peak, Musk’s endorsement rocketed Dogecoin to a market capitalization of $88 billion in May 2021 and became a pop culture phenomenon.

When a celebrity endorsement disappears, these cryptos can crash. Today, Dogecoin’s market capitalization is only a tenth of its all-time high from over a year ago.

Other Popular Meme Pieces

Dogecoin still serves as an inspiration for meme coins. Over 200 such pieces have been created since the launch of the original meme piece.

Shiba Inu (SHIB) was launched two years ago as a “Dogecoin killer”. The crypto even mimics the Dogecoin brand in that it uses the same dog Shiba. SHIB has also grown by leaps and bounds, reaching a market capitalization of $41 billion in October 2021.

Many other meme coins were created in hopes of building their own communities and sky-high valuations, but this year saw market prices come down to earth, with meme coins being some of the hardest hit.

Dogecoin fell 60% in 2022, Shiba Inu fell 64%, while many smaller meme coins fell to zero and are being discontinued.

How do Meme Coins work?

The barriers to entry are extremely low for meme coins.

The open-source nature of the blockchain technology underlying these cryptocurrencies means that creators can simply “fork” existing cryptos – essentially copy and paste the underlying blockchain – and launch online while tweaking something new. ‘as minimal as the name or logo.

“A meme coin is just a cryptocurrency so it can be created easily with a few lines of code,” says 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 pieces are usually promoted by their creators on social media platforms to build initial hype and drive up the price. After that, the price may continue to rise if the coin manages to build a strong community.

With the bull market hysteria pushing prices vertical in the market, many meme pieces have been created to try and capitalize on the craze.

Should you invest in Meme Coins?

For every Dogecoin, there are many other meme coins that have left retail investors underwater.

Even Dogecoin is down 91% from its all-time high, while Shiba Inu is down 84%. The two still have market capitalizations of $8.7 billion and $6.5 billion, respectively.

Unlike Bitcoin, which is capped at 21 million coins, meme coins often have a high or unlimited supply.

There are over 135.5 billion coins in circulation for DOGE, 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 around 6.25 BTC – worth around $143,000 – are mined every 10 minutes.

Meme coins also usually don’t have mechanisms such as “burns” that remove coins from circulation, so the number of coins in circulation keeps increasing. Shiba Inu, for example, has over 590 trillion parts in circulation, at the time of this writing.

Shiba Inu and Dogecoin are considered success stories among meme coins. The thing is, most meme pieces eventually die out.

“No one remembers the names of the Dogecoin peers from 2013-2014, who no longer trade anywhere and eviscerated untold amounts of speculator money,” says Jonathan Zeppettini, head of international operations at Decred.

“We tend to focus only on the winners and ignore the fact that those wins are extreme outliers.”

While the evidence seems stacked against meme coins turning into the next Dogecoin or Shiba Inu, the salivating edge and extreme “fear of missing out” were most evident during the year’s bull market hysteria. last.

But that’s not stopping retail traders from trying to strike it rich. However, it is still important to consider them more as bets than as investments.

“Most of the meme coins either fell to zero or failed to take off at all,” says Nick Saponaro, CEO of blockchain startup The Divi Project. “Meme coins should be viewed as a roll of the dice and those who invest their money in these speculative assets should do so, assuming they will lose whatever they invest.”

Are Meme Coins safe?

While memes are marketed as fun and lighthearted, there can be a dark side to cryptocurrency edits.

Not only are prices extremely volatile, with many meme coins dropping 99% or even zero in the current bear market, but there are numerous accusations of foul play and bad intentions against creators, who are often anonymous.

Zeppettini highlights several incidents where the founders have been known to “create new parts, control 100% of the sourcing upfront, and then focus exclusively 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 mentions on social media or activity driven by bots that make the asset look like it’s ‘trendy,'” he says.

This is not the only concern. Many meme pieces are often held by a small group of people who own large concentrations. According to data from IntotheBlock, 48% of DOGE is controlled by seven crypto wallets. This number is even more striking for SHIB, where 69% of ownership is concentrated across 15 portfolios.

With such a high concentration, a large investor could manipulate the market with their position or drive down the price of the coin when they cash out their holdings.

While it’s technically possible to make money from meme coins, it’s not a sure thing. These cryptos are subject to more volatile factors than traditional cryptos like Bitcoin and Ethereum, and the value of a coin can drop overnight.

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