What are meme coins?

Meme coins are cryptocurrency tokens inspired by memes and popular culture. Many of them attract large cult followings, and some have even ballooned into hugely valuable projects over the years. However, they are widely regarded as very risky investments in general. Most meme coins are created for entertainment purposes rather than usability.

As a result, it is important for cryptocurrency investors, particularly those who are new to the hobby, to be fully aware of the risks before parting with their capital. In this AAG Academy guide, we’ll explain meme coins and how they work in more detail, help you establish whether they’re safe, and look at some of the most popular meme coins on the market today.

What is a meme coin?

Memes have become a staple of the modern internet. Whether you’re browsing your favorite blogs or scrolling through social media feeds, you’re bound to stumble upon humorous images, GIFs, and videos that the internet has deemed worthy of meme status. It’s no surprise, then, that as the cryptocurrency industry has taken off, tokens based on memes have followed suit.

Meme tokens are much like any other cryptocurrency in that they are digital assets built on blockchain technology. However, it’s important to remember that while most cryptocurrency projects are built around a specific purpose, like replacing traditional currencies or powering decentralized applications (DApps), meme coins are mostly just for fun.

The vast majority take advantage of the most viral memes of the time, and because those tend to lose their appeal relatively quickly, any tokens based on them typically suffer the same fate. Although, that’s not always the case. A small number of meme tokens have grown into incredibly valuable projects, some of which find some purpose over time.

How do meme coins work?

As we touched on above, meme tokens rely on blockchain technology, just like other cryptocurrencies. They are usually based on Ethereum, Solana, and other open-source networks, which allow for a distributed database that can be used to track all assets in circulation. For the most part, they exist purely to be traded.

In other words, meme coins cannot be used for staking or joining a DAO, and they are very rarely accepted as a form of payment. Just like the media they are based on, they are mostly designed to be shared or promoted as much as possible in a short period of time. A small number end up with a cult following, but most eventually fall out of favor pretty quickly.

Meme coins typically launch with an uncapped supply, which means there is no limit on how many tokens are released into circulation. This is another reason why very few of them have any real value, and why their values tend to fluctuate even more than other cryptocurrencies, which are already more volatile than other assets.

There are some exceptions to these rules. As we briefly touched on above, there are a few meme coins that do offer a use case, such as FLOKI. This particular token is key to the FLOKI ecosystem, which includes play-to-earn games, NFTs, decentralized finance applications, and an education platform. As a result, FLOKI is known as a utility meme coin.

What are some popular meme coins?

The most popular meme coins are Dogecoin and Shiba Inu. As of March 4, 2023, these projects have total market values in excess of $10 billion and $6 billion, respectively — and that’s despite the fact that, like other meme coins, neither of them have any real use case. Their value is purely based on their popularity, and they just happen to have amassed the biggest followings.

Billy Markus and Jackson Palmer, the creators of Dogecoin, have admitted that they didn’t intend for the token to have a use case. In fact, it was actually launched as a joke that mocked Bitcoin and the wider cryptocurrency industry. One of the reasons for its popularity today is that Dogecoin is occasionally hyped by Tesla and Twitter CEO Elon Musk.

After Dogecoin and Shiba Inu, the most popular meme coins are FLOKI, Bone ShibaSwap, Dogelon Mars, and Baby DogeCoin, but none of these are worth more than $400 million.

Are meme coins safe?

Many meme coins are safe in that they are not intended to scam investors. However, due to their highly volatile nature, and the fact that meme coins tend to fall out of favor very quickly, it is incredibly easy to lose capital when investing in them. To minimize losses, thorough research is recommended, and large investments should usually be avoided.

It’s also important to note that some meme coins are scams — typically rug pulls that are designed to attract large numbers of investors as quickly as possible so that their creators can disappear with the liquidity. Again, the best way to avoid these is to thoroughly research projects before you invest in them. If it seems suspicious, it’s likely unsafe.

What are the risks of investing in meme coins?

The biggest risk of investing in meme coins is that they often lose any value they have very quickly. Because most are built solely around being popular, they can fall just as quickly as they rise. Experienced investors are aware of this, so they tend to cash out quickly when there’s a suggestion that popularity is waning, which only exacerbates the situation.

The vast majority of meme coins should not be considered long-term investment opportunities. Traders have to time their moves correctly to ensure that they acquire tokens ahead of a popularity peak and then sell them before others start to cash out en masse. If you don’t act quickly, you’re likely to miss out on any potential profits.

Again, we must reiterate that a small number of meme coins do not follow this pattern. But if you’re hoping to use meme coins to your advantage, it’s usually best to assume that any significant increase in value is going to be temporary.

Should you invest in meme coins?

Whether you should invest in meme coins depends on your own investment strategy. If you prefer safer investment opportunities, meme coins should probably be avoided given their track record of being so risky. However, if your risk tolerance is higher and you’re confident you can correctly predict trends and price movements most of the time, there is potential to earn a profit.

In fact, the highly volatile nature of meme coins means that sharp price increases can occur, so significant gains can be achieved by those who time their movements effectively. For instance, if you purchased $10 worth of Shiba Inu in early 2021, you could have sold it for more than $80,000 around seven months later.

Where to find trending meme coins

To earn a profit from meme coins, you need to discover them at the right time — when they are trending or, ideally, just before they start trending. One of the best ways to do this is to track meme coin values on sites like CoinMarketCap and CoinGecko. You may also choose to follow popular crypto forums and subreddits, but be wary of scams promoted on these channels.

References

• What are meme coins
• Meme coin