The Memecoin Casino: Investing vs. Gambling
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Key Takeaways:
Everyone likes a good joke… especially on the Internet. This love of irreverent humor and community has led to the rise of a specific form of fun in the crypto space: the phenomenon called “memecoins.”
In this guide, we’ll cover our approach to memecoins: what they are, why they are popular, and how some memecoins are making waves for investors.
What Are Memecoins?
Memecoins are a type of cryptocurrency inspired by internet memes and trends. They’re typically supported by online communities that view them as light-hearted and fun. However, they have also come to represent a get-rich-quick scheme for some.
Unlike Ethereum, Bitcoin, and other cryptocurrencies, memecoins have no actual utility or purpose beyond their cultural value—in most cases, they are purely used for speculation, or “gambling.” Naturally, this makes them volatile and loaded with risk.
The Rise of Memecoins
The birth of memecoins can be tied directly back to DOGE.
Dogecoin (DOGE), the first widely recognized memecoin, was launched in 2013 by two software engineers as a joke inspired by the doge meme (a viral meme of a Shiba Inu often paired with relatable captions).
However, despite its humorous roots, Dogecoin soon became a cultural phenomenon, partly due to Elon Musk promoting the coin on Twitter in 2019. In 2021, the coin spiked 800% in 24 hours due to attention from Reddit users and encouragement from Elon Musk via Twitter.
Now, Dogecoin is the world’s largest memecoin, with a market cap of over $22 billion. For comparison, that’s larger than the market cap of Michael Saylor’s Microstrategy stock.
Other memecoins launched soon after the birth of Dogecoin, with varying success. The second biggest memecoin by market cap, the Shiba Inu coin (SHIB), was created in 2020 by an anonymous group/person under the pseudonym “Ryoshi.”
Today, there are half a million memecoins, thanks to platforms that let users crank out new coins with a few clicks of a button. Naturally, the vast majority are worth only a tiny fraction of a penny.
How Do Memecoins Work?
Humor and internet culture play a large role in shaping the narrative around memecoins. Memecoins tap into the collective consciousness of online communities, leveraging the humor and relatability of memes to drive value and adoption.
Accordingly, the more buzz an online community can create around a meme and its attached memecoin, the more successful the memecoin is likely to be. Often, followers of a memecoin will leverage platforms like Instagram, Reddit, TikTok, and Twitter to create the buzz necessary for success.
Dogecoin is the primary example of this phenomenon. Its accompanying meme became so popular that it sold as an NFT for a record-breaking $4 million. Additionally, the coin has received celebrity endorsements from Snoop Dogg, Gene Simmons, and Mark Cuban, who made Dogecoin a valid form of payment for his Dallas Mavericks game tickets and merchandise.
Memecoins are Gambling
Even if you are interested in investing just a bit of money into memecoins, for humor’s sake, it’s crucial to understand their volatility before diving in. Investing in a memecoin is a huge financial gamble, as the success or failure of a memecoin is extremely unpredictable.
While Dogecoin and Shiba Inu are success stories among memecoins, neither coin has ever been able to stabilize for a sustained period. Additionally, most memecoins fade into oblivion after their initial hype dies down (if they get any hype at all).
Despite their volatility, many people are still drawn to memecoins due to the psychological appeal of high-risk, high-reward investments and FOMO (fear of missing out).
This is especially true when a memecoin experiences a price surge, as this often leads to people clamoring to buy the coin to get in on the action. But, because the price is so volatile, investors should never purchase more than they can risk losing, as the price could easily plummet the next day.
What Are Some Notable Memecoins?
Shiba Inu: Launched in 2020, Shiba Inu is the second-largest memecoin by market cap. The coin gained popularity thanks to Elon Musk and Vitalik Buterin's Twitter support. The coin saw its biggest price spike in October 2021, when its price went up over 300%. However, as indicated by the above graph, this price spike didn’t last for long, with the value continuing to decrease over the next two years. As of May 2024, analysts believe that the coin may spike in price again, as the coin mostly moves in tandem with Bitcoin, which is also predicted to surge. However, due to the extreme volatility of the coin, there is no guarantee that this surge will happen.
Pepe: Launched in April 2023, Pepe is named after the popular “Pepe the Frog” meme within the crypto community. The initial excitement of the coin launch led to a price surge in May 2023. However, shortly after the excitement died down, a developer update mistook by the community as a security breach led to many investors quickly selling their coins, causing the price to decline rapidly.
BOOK OF MEME: Launched in March 2024, BOOK OF MEME was created as an experimental web3-focused project to combine memes, decentralized storage, degen trading, and gambling. The BOOK OF MEME experiment aims to encapsulate the ever-evolving meme culture within a digital compendium. The project seeks to ensure that each piece is immortalized on the blockchain. After an initial surge to just over $0.02, the token declined by 50% but has since held its value.
Dogwifhat: Launched in November 2023, Dogwifhat is a memecoin operating on the Solana network based on the popular meme of a Shiba Inu wearing a pink hat. The memecoin has strong community support and has received several celebrity endorsements via Twitter. However, despite its current surge, there is no guarantee that the price will continue surging, and it very well may plummet after the initial excitement dies down.
Memecoin Risks and Rewards
While memecoins may offer the allure of a quick profit, the chances of success are extremely low.
Generally speaking, the people who do the best in memecoins are the creators. If they can get enough early traction, they can sell their enormous allotments for a profit, and leave others holding the bag. But even creating memecoins is not a good path to wealth: even though they’re easy to create, they’re difficult to promote and publicize, given all the memecoin competition.
The memecoin market is prone to scams, like pump-and-dump schemes. In these schemes, groups or individuals artificially inflate the price of a coin through online marketing and hype, only to sell off their investments at the peak, leaving everyone else with significant losses.
Rug pulls, a type of scam in which creators suddenly abandon their memecoin project and take investor funds with them, are also common.
There are also instances where scammers use social media to lure investors into buying a non-existent token. One such scam occurred in March 2024, when an imposter posing as a crypto influencer tricked people into buying a non-existent BULL token.
Memecoin Investing Strategies
Due to its high risk and low likelihood of reward, we do not recommend investing in memecoins. However, if you’re willing to make a big gamble or simply want to buy a memecoin to learn about them, please exercise extreme caution before investing.
Plan to thoroughly research the memecoin of your choosing, looking at its price history, who is behind the coin, whether it seems legitimate, the online community surrounding it, and, if the coin has experienced a crash, what led to it. (Use our Blockchain Investor Scorecard for your research.)
While you may be interested in joining online community forums for discussion, take them with a grain of salt. While you’ll see many people in these forums with much passion and enthusiasm for a memecoin, their predictions for the coin’s success are often wishful thinking.
Investor Takeaway
While memecoins are mostly fun and games, people have lost large sums of money gambling on them. While some memecoins have made incredible gains, and a few have even stood the test of time, the vast majority (over 99%) remain largely worthless.
If you’re considering entering the memecoin casino and placing a few bets, never invest more money than you’re willing to lose. The hype and excitement around memecoins can be very alluring, and it can be all too easy to fall victim to a bad investment or, worse, a scam.
