Meme Coins - Crypto Speculation With Jokes

Meme coins are cryptocurrencies, such as Bitcoin or Ethereum, dedicated to an interesting or funny idea captured in an image, video or other form of media (meme). Like the memes they're based on, they're designed to go viral and be shared online, according to exchange crypto.com.

Dogecoin, the original and most important meme coin in terms of capitalization, was created in 2013 as a joke to satirize the effervescence surrounding Bitcoin and other cryptocurrencies. Its developers wanted Dogecoin to be a fun and easily accessible altcoin, which is why they didn't set a limited supply for it. Dogecoin was an instant success upon launch, gaining popularity on social media platforms and becoming a staple of the crypto space in early 2021 when celebrities such as Elon Musk, Mark Cuban and Snoop Dogg endorsed it, leading to to a sudden increase in its price, an episode which, however, was short-lived, according to the mentioned source.

Earlier this week, Dogecoin had a market valuation of around $14.2 billion, followed by Shiba Inu at $7.9 billion, according to CoinMarketCap.

• High volatility, unlimited supply

Meme coins work like any other cryptocurrency, often being built on blockchains that use smart contracts, such as Ethereum and Solana, writes crypto.com. According to Investopedia, most meme coin sites state that they are just meme coins for no other purpose than entertainment.

In the case of more popular coins, the developers claim that they have some utility and indicate that they are accepted by some merchants. Since many meme coins are listed on a crypto exchange, they can be converted to fiat currency and have a market value. But, this does not mean that they have utility, only that they exhibit convertibility.

Because they revolve around the community they manage to coagulate, the price of meme coins is volatile and increases are considered speculative. For example, when Musk and Mark Cuban promoted Dogecoin, its price skyrocketed, but once the excitement died down, the price dropped just as quickly. Extreme movements occur, to some extent, because of the way they are designed - unlike fiat currencies and most cryptocurrencies, the supply for most meme coins is unlimited, meaning they are inflationary in nature (one exception notable in this regard is the Shiba Inu), according to crypto.com.

• Speculation, membership in a particular community or entertainment

There are a variety of reasons why people buy meme coins, primarily for speculation, belonging to a certain community, or just for fun, according to crypto.com.

According to the mentioned source, there are meme coins that have certain utilities or are part of wider decentralized finance (DeFi) ecosystems. For example, Shiba Inu developers plan to create Shibaverse, a Metaverse for members of the Shiba Inu community.

The price of meme coins is gaining traction due to online communities fueling their popularity through social media, memes, or viral marketing, which can create a sense of belonging and shared identity among holders.

According to crypto.com, meme coins were originally thought to have little intrinsic value, but according to other sources they have no value at all. They are not based on physical assets and most do not have a project behind them, but nevertheless, they sometimes go viral and experience sudden price increases, attracting speculators looking for short-term gains.

Although currently the quotation of more important meme coins such as Pepe, dogwifhat or Bonk is increasing compared to the moment when they became listed on an exchange, according to data displayed by investing.com, the main ones with a longer history, such as Dogecoin and Shiba Inu are well below their 2021 records.

• Types of fraud

Meme coins are not regulated, so they are susceptible to fraud, among the most known being, according to crypto.com:

1. Airdrop scams. Through this scheme, scammers promise free tokens in exchange for users' personal information, wallet details or a small "activation" fee. They are usually promoted on social media or through phishing emails imitating legitimate crypto projects. Once user information is obtained or payment is made, scammers can steal funds directly from the user's wallet or disappear.

2. Rug-pull scams. In this case, the developers of a meme coin suddenly withdraw all liquidity from the project, leaving holders with worthless tokens. This leads to a dramatic collapse in the coin's price, and holders are unable to sell their tokens or recoup their investments.

3. Schemes of the "pump and dump" type. Through such tactics, groups of traders artificially inflate the price of a meme coin by buying large quantities and spreading positive, often misleading information to attract more buyers. As the price rises, traders participating in the scheme sell their holdings at a profit, causing the price to crash. Those who buy at the end are left with devalued tokens and suffer substantial losses.

According to an article late last week in The Cryptonomist, which is based on Lookonchain data, an anonymous person nicknamed "the whale" due to the size of his transactions, purchased $1.03 million worth of Solana tokens, which he then exchanged, in a single transaction, for the meme coin MBAPPE, a move evidently made with the hope of making substantial gains. Only, only an hour after he made the placement, the stock price crashed and the value of his holdings decreased from $1.03 million to just $9,200.

According to an article published by CoinMarketCap, the X (formerly Twitter network) account of footballer Kylian Mbappe had been hacked to promote the fraudulent token.

According to crypto.com, there are steps that increase the probability of identifying possible frauds related to meme coins, such as: studying the development team and the context of the project; studying the social network community/members where the meme currency is promoted; analysis of how tokens are distributed, used and managed, as well as market behavior.

According to a Chainplay report from August, about 97% of the meme coins that ever existed no longer exist, writes Cointelegraph.