A ‘memecoin’ is a cryptocurrency that originated from an internet meme. Most memecoins are notable for featuring a person or animal with one or more humorous characteristics.
Although they are often created as a joke, some have gained significant value. There always seems to be a constant new supply of them to the market as well.
The ‘PEPE’ , ‘MILADY’ and ‘BONK’ memecoins are some of the more recent examples that have gained publicity. The memecoin ‘TURBO’ is an AI-driven digital asset featuring a futuristic toad mascot.
The well-known Dogecoin (DOGE) is still around with its dedicated followers. It even has its own discrete blockchain technology. Meanwhile, ERC-20 tokens Shiba Inu (SHIB) and Floki Inu (FLOKI), on the popular Ethereum blockchain, remain thanks to their strong communities.
These are prime examples of how many coins persist even when very few of them actually offer any true utility. In this article, we’ll examine what drives memecoin prices and what factors make them so popular.
Understanding why this type of cryptocurrency catches on
When you see a meme token shoot up in value, it’s normally for one of the following three reasons:
- Social media hype: Memecoins are often promoted on social media which can help to drive up their prices.
This is especially true for new memecoins if they gain the backing of part of the crypto community as a result. Their prices can skyrocket when this happens.
Speculation: Memecoins are often seen as speculative, hopeful investments.
People buy some of the top memecoins in the hope that this will drive up the prices and spur more buyers to jump on board. This is one of the reasons for their high volatility.
FOMO: Fear of missing out (FOMO) is another factor that can drive up memecoin prices.
When people see the price of a memecoin shooting up, as Dogecoin and Shiba Inu once did, they may feel like they need to buy now to not miss out on the gains.
This can also lead to a self-fulfilling prophecy, as more people buying into the meme cryptocurrency can cause its price to go up even further.
Interpreting market behaviour as signals for investing in meme coins
Before going onto your favourite crypto market exchange to buy the most popular meme coins of the moment, consider the following:
- Social media activity: Most coins’ initial publicity drives are on social media platforms.
There may be a lot of activity around a coin but is it good, community-driven activity? If so, it could be gaining popularity which could be a good indicator for future price rises.
Price history: It is also important to track the price history of the memecoin to see how it has performed in the past. If the price has been consistently going up, it could be a sign that there might still be some remaining upside.
Market capitalisation: The market cap of a coin is the value of its currently circulating supply. If the market capitalisation is high, it could be a sign that the memecoin may be too expensive.
Fundamentals: It is also important to consider the fundamentals of each coin.
This includes factors like the team behind the project, the technology, and the use case. If the fundamentals are strong, it could be a sign that the memecoin has long-term potential.
Remember that these coins are very risky investments. You should only invest in them if you’re certain you understand the level and nature of the risks involved.
That said, as was the case when Elon Musk “backed” Dogecoin, memecoins can also be very profitable. Get in at the right time with one and it could generate large and sometimes life-changing returns.
Below are a couple of useful websites you can visit to check out these coins, their backstories and their behaviours:
- CoinMarketCap: CoinMarketCap is a website that tracks the prices of all cryptocurrencies.
CoinGecko: CoinGecko is another website that tracks the prices of all cryptocurrencies.
Risks of meme coin investing
You should be able to buy the memecoin you want by going to your favourite crypto exchange.
Here are some of the risks you might want to consider before you go ahead with your purchase though:
- They have no intrinsic value: Memecoins are not backed by any assets. Speculation, and nothing else, drives their value.
This means that their prices can be very volatile, and there is a high risk of losing money if you invest in them.
They are often created by anonymous developers: And they’re not interested in you or your welfare. Beware of “rug pulls”, a scam where developers create a memecoin that looks more legitimate than it is and then remove market liquidity.
They are often promoted on social media: This can lead to an emotional attachment, not a rational investment decision.
Community fever can turn into a self-fulfilling prophecy where more people buy into the memecoin. This causes the price to go up even further causing a bubble that will eventually pop.
Meme coins: a sound investment or passing hype?
Dogecoin is now 10 years old. For a long time, there was speculation that its price might reach $1.00 in value. So far, it hasn’t, reaching an all-time high of $0.7376 on May 8th, 2021.
That may have had something to do with the change in the total supply of Dogecoin, according to Crypto Analyst Natalie Laz. She wrote:
“Jackson Palmer initially intended to keep about 100 billion Dogecoins in circulation. Although eventually, he decided to change his own protocol.
“Based on the online community’s feedback, Jackson left the Crypto uncapped. With an unlimited supply, 126 billion Dogecoins have already been mined.”
For something that was originally a joke, Dogecoin and many other memecoins have been around for a long time. It suggests that memecoins, cryptocurrencies, NFTs, Metaverses and Web3 are not passing hype.
We shouldn’t laugh at Dogecoin’s early investors too. If you bought $1,000 of Dogecoin at its lowest price of $0.00008547 on May 7th, 2015 and sold at its peak of $0.7376 on May 8th, 2021, you’d have made $8,629,930.
It is far more likely they will continue to make well-informed investors considerable returns.
Making informed decisions: meme coin prospects in 2023
Take the same approach with meme coins as you do with any other type of assets. Be as knowledgeable as you possibly can be before you decide to invest.
Do your own research and only invest what you can afford to lose. Diversify your portfolio and follow related news to track market movements. Zooming out and viewing price data in context also helps.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not digital asset or cryptocurrency trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.