- Meme coins exploded in popularity in 2021 following the rise of Dogecoin (DOGE) and Shiba Inu (SHIB).
- Meme coins are meme-inspired cryptocurrencies that tend to be community driven and extremely volatile.
- These projects typically have extremely large token supplies and are highly influenced by social media, celebrities, and community sentiment.
- Most traders lose money investing in meme coins.
- Since meme coins have no underlying business or assets they trade entirely on speculation making them exceptionally risky.
2021 was a breakout year for a sector of the cryptocurrency market known as “meme coins,” led by the two dog-themed popular meme coins, Dogecoin (DOGE) and Shiba Inu (SHIB).
Following the monumental rise of these projects up the charts to multi-billion dollar market capitalizations, the meme coin sector has exploded in numbers as all manner of copycat projects and those looking to harness the momentum of the rising trend have emerged onto the scene.
What Are Meme Coins?
A meme coin is a cryptocurrency project that was inspired by popular memes or jokes that circulate on the internet and social media. The most popular meme coin, Dogecoin, was originally launched in 2013 as a joke or parody that was inspired by the popular Doge meme of a Japanese Shiba Inu dog.
Due to their less than serious nature, these projects often have an extremely large token supply and experience wild volatility, even by crypto market standards. Their high circulating supply also means that the vast majority of meme coins trade well below a value of $0.01.
A perfect example of this is SHIB, which has a max supply of 1 quadrillion tokens and has only traded with at least four zeros following the decimal point (the all-time high price for SHIB is .00008845).
Meme coins are typically community-driven projects that can explode in popularity overnight if they happen to catch the attention of mainstream social media communities.
Traders should use caution, however, because meme coins are known to fall just as rapidly as they rise when the attention of the crowd transfers to the next hot token.
Why Are Meme Coins So Popular?
The exact reason for the popularity of meme coins is a topic of great debate, but for some, they are a natural emergence out of internet culture where memes are widespread and generally well-liked.
Creating pictures with a few words that capture the mood of a large segment of society or help provide a simple explanation for events that are occurring have become a favorite pastime of the internet age, so it's only natural that meme coins would become a thing.
Others point to the increased attention that cryptos received from the general public during the COVID-19 pandemic as retail investors sought out a hedge against inflation as they were isolated at home. Rapidly rising prices excited the crowds and helped introduce an entirely new cohort to the crypto ecosystem.
The “meme stock” period which saw the retail sector perform an epic short squeeze in stocks like GameStop (GME) and AMC Entertainment (AMC) gave some a taste for high flying prices and volatility, which was a perfect fit for the crypto market and the arrival of meme coins.
Once the Reddit groups that helped pump these stock prices started promoting the idea of sending DOGE to $1, influencers like Elon Musk helped the trend snowball from there and the meme coin sector was born.
Following Dogecoin’s rapid 2,000% rise to an all-time high of $0.73 over a period of five days in May 2021, participants in the market proceeded to jump from meme coin to meme coin as their prices surged higher in value and subsequently plummeted back down as traders scrambled to the next rising token.
At its height, SHIB was seen as the Dogecoin killer with stories circulating about one savvy investor who made a well-timed bet on SHIB of $8,000 late in 2020 that eventually turned into a billion dollar payday at the height of the meme coin bubble.
The high-flying nature of the sector and its overnight rags to riches stories continue to inspire crypto investors to dabble in the sector, and the ability to acquire millions or billions of the tokens for relatively cheap makes them even more attractive to the retail crowd.
Regardless of all the different variables involved, the meme culture of the internet is one of the most popular forms of engagement enjoyed across all societies on the planet, so it's likely that meme coins will remain a relevant sector of the crypto market as long as internet users continue to make, share and enjoy this internet pastime.
Meme Coin Risks
Despite the fun nature of meme coins, the sector as a whole carries the same risks as investing in any financial product or cryptocurrencies but with even less regulation or protection.
As mentioned earlier, meme projects tend to have an extremely large token supply which makes it extremely difficult to maintain a substantial increase in price. It is highly unlikely that institutional investors will ever take these projects seriously due to their token supplies, especially when compared to projects like Bitcoin with a limited supply and widespread adoption.
The parody or joking nature of most meme coins is the only thing that they have going for them, with limited use cases or applications to give the tokens real-world value. They also tend to lack any real development and instead piggyback on existing networks like Ethereum, meaning they have little value to contribute to the growing cryptocurrency ecosystem.
Projects that are community driven are often subject to the whims of the crowd, and meme coin prices unexpectedly pump and dump more than tokens in other sectors of the market, leading to a short-lived lifecycle for the vast majority of meme coin projects. The mere mention of a meme token by a popular celebrity or influencer can send its price soaring by thousands of percent overnight, only for it to crash back down in a matter of days, leaving buyers at the top holding a large bag of worthless tokens.
The rapid rise and fall nature of the sector is also attractive to scammers and nefarious parties who have been known to create a project and hype it up to the community, only to rug pull investors and abscond with their money once the project has started to catch on following a rapid rise in price.
It's important for every investor to understand these risks and do a thorough amount of research before investing in any meme coin project.