All Details About Meme Coins in Cryptocurrency

Introduction

Meme Coins are meme-inspired cryptocurrencies that are more volatile than mainstream cryptocurrencies such as Bitcoin (BTC) and Ether (ETH).

Meme coins gain popularity due to their low cost, community-driven nature, marketing through social media, and endorsement by high-profile individuals.

Meme coins often carry significant risks due to their tokenism's inflation, high volatility, and high probability of being pulled under the rug.

Meme coins are a significant part of the cryptocurrency market, known for their rapid and unpredictable price movements. Often inspired by internet memes and jokes, these coins gain popularity through social media and online communities. This article explores what meme coins are, why they have gained popularity, and the potential risks associated with them. 

What Are Meme Coins?

Meme Coin is a virtual cryptocurrency inspired by internet memes or jokes. The first meme coin was Dogecoin (DOGE), launched in 2013 as a parody, inspired by the popular Doge meme featuring a Japanese Shiba Inu named Kabosu. Meme coins tend to be highly volatile and are mainly community-driven, gaining popularity overnight due to endorsements and FOMO (fear of missing out). Their prices can also crash unexpectedly when investors turn their attention to the next meme coin. Another characteristic of meme coins is their large or unlimited supply. For example, DOGE has no maximum supply while Shiba Inu (SHIB) has a total supply of 1 quadrillion tokens. The absence of a coin-burning mechanism explains their relatively low prices.

Why is meme coin so popular?

During the COVID-19 pandemic, the crypto market grew as retail investors sought ways to hedge against inflation. Amidst this hype, meme coins boomed, increasing in market capitalization and variety. The phenomenon gained momentum following the "meme stock" saga involving GameStop (GME) and AMC Entertainment (AMC), where the Reddit community significantly boosted the prices of these assets.

Inspired by this, people started joking about pumping the price of Dogecoin (DOGE), creating a crypto equivalent of GME. Endorsements from high-profile figures such as Tesla CEO Elon Musk led to a significant rally in DOGE's price.

The excitement around meme coins grew as crypto traders explored other meme coins such as Shiba Inu (SHIB) in hopes of replicating DOGE's success. Retail investors are attracted to meme coins because they are generally very affordable. These are often just a few cents or even fractions of a cent. This allows crypto traders to hold thousands or even millions of tokens, rather than holding fractions of larger cryptocurrencies like ETH or BTC. The meme coin frenzy is driven by community and market trends. Popular internet memes inspire meme coins, are intended to be fun, and often serve as "inside jokes" for their communities. One way to show support for these communities is by buying meme coins. The institutionalization of meme coins in 2024 has significantly increased their popularity. The Meme Coin Key Development Index was launched by Vanek, which tracks the six largest meme coins by market cap. This index increased the visibility of MemCoin and served as a milestone in the asset management industry, inspiring funds to try and outperform it. After all, the inclusion of MemeCoin tickers and information about MemeCoin on channels like Bloomberg has helped increase business activity.

What does meme coin mean in the crypto community?

Many meme coins, such as Dogecoin (DOGE), were launched with a fair distribution model, meaning they were available to the public without pre-mining or significant early allocations to project founders. This agrees with the views of many cryptocurrency enthusiasts who value open access and community-driven growth. This decentralized nature and ownership within the community fosters a sense of participation.

However, not all projects follow these principles. Some meme coins are pre-mined, with a significant portion of the tokens allocated to the creators or early investors before public distribution. This often raises concerns about transparency and fairness, as it may give some individuals or groups the power to control a significant portion of the currency supply. For example, coins such as Shiba Inu (SHIB) have mixed reactions due to their use and allocation processes by their creators.

Decentralized meme coins are viewed more positively by the community, as they embody crypto's core principles of decentralization and community involvement. Contrariwise,  centralized meme coins are often criticized due to the potential risk of handling and unfair practices.

Potential Risks of Investing in Meme Coins

Tokenomics

The tokenomics of meme coins can be concerning. Unlike Bitcoin, which has a well-defined ecosystem and a deflationary nature, most meme coins are inflationary and have no maximum supply. Ecosystem use cases and fundamentals are often defined by the mass fun of their communities.

Instability

Meme coins are massively community-driven and more unstable than larger market capitalization cryptocurrencies. Their prices can skyrocket from celebrity shillings or FOMO, or crash unexpectedly when the community turns its attention to another meme currency.

Rug Pulls

Rage pulls in the meme coin market is a remarkable risk, with developers forsaking the project and investors disappearing with their assets. This type of scam is common and has occurred many times throughout the years.

Examples of Meme Coin Rug Pulls

SQUID: A 2021 meme coin inspired by the popular Netflix show "Squid Game," gained sudden traction due to the show's popularity. However, the development team rug-pulled the project, a result users losing their funds.

BALD: In July 2023, when developers pulled all liquidity from the coin on Coinbase's Layer-2 base network, the BALD meme coin experienced a rage pull that caused the token's value to drop to zero.

MetaSwap: In early 2024, the MetaSwap token experienced a dramatic pullback, causing substantial losses for investors. Developers suddenly withdraw liquidity by giving investors worthless tokens.

Things to do to reduce the risk of investing in meme coins

Investing in meme coins can be highly hypothetical and risky due to their volatility and community-driven habit. Strategies to mitigate these risks are discussed below:

Do Your Own Research (DYOR)

Before investing in Meme Coin, get detailed information about the project and judge the pros and cons. If possible, examine the team behind the project, their goals, white papers, roadmaps, and overall community sentiment.

Understand the Tokenomics

Keep a close eye on the supply dynamics of Meme Coin. Unlimited or extremely high supply can cause currencies to experience inflationary pressures, and potentially lead to devaluation. Understanding any processes like token distribution and burning or staking can also provide a perception of the long-term performance of the coin.

Diversify Your Portfolio

Avoid depositing all your funds in just one meme coin. Storing assets in different meme coins can help avoid risk. Consider balancing your investment portfolio with more established cryptocurrencies, such as Bitcoin (BTC), Ether (ETH), Solana (SOL), and Binance Coin (BNB).

Stay Informed

Meme Coin is heavily persuaded by social media trends and news. Keep track of the latest developments and updates related to your investments. Use tools like Google Alerts, join relevant social media groups, and follow influential people in the cryptocurrency world.

Set Stop-Loss Orders

Consider using stop-loss orders to automatically sell your meme coins if the price drops below a certain level. Stop-loss orders can protect you from experiencing significant losses.

Avoid Impulsive Decisions

Only invest what you can afford to lose and avoid impulsive decisions driven by emotions like FOMO. The hype around meme coins can lead you to impulse buying decisions. Take a step back and evaluate whether the investment is worth it based on your research rather than buying on impulse.

How do you avoid meme coin Rug Pulls?

Check the Liquidity

A strong liquidity pool is essential for the sustainability of any cryptocurrency. Check the liquidity-locked status of the meme coin you are interested in investing in to make sure it is liquidity-locked, meaning developers cannot raise funds easily. Assistance can be taken from services like UniCrypt to check liquidity lock status.

Examine the Smart Contract

If you are tech-savvy, review the project's smart contracts Look for red flags, such as functions that allow developers to mint unlimited tokens or transfer large amounts of funds. Alternatively, look for third-party audits from popular security firms like CertiK or Hacken.

Check the Team

An anonymous team can be a red flag. Although a pseudonym is common in the crypto world, it can be used by scammers to disappear without a trace. Look for projects from transparent and credible teams that have a verifiable track record in the crypto industry.

Assess Community Engagement

A valid project can be identified by an active and strong community. The depth of the project can be gauged by looking at their sentiments and activity on social media like Discord, Telegram or Twitter. However, beware of fake followers or schemes with unusually high shillings.

Check the Project’s Roadmap

Generally, valid projects have a detailed roadmap that outlines their development goals and timelines. Compare the roadmap with the actual progress of the project to see if they are working according to their promises. Projects that make unrealistic promises or frequently change milestones can be suspect.

Look for Red Flags

Be wary of projects that rely heavily on hype and celebrity endorsements without providing sufficient benefits to their technology or usability. Schemes with high-pressure tactics, such as limited-time offers or guaranteed returns, are signs of a scam.

By following these guidelines and maintaining a healthy level of caution, you can better assess the meme coin landscape and avoid potential scams like rage-pulling. Always remember that investing in cryptocurrencies, especially meme coins, must carry significant risks.