What are meme coins, and what purpose do they serve?

Meme coins (also memecoins), as the name suggests, are a class of cryptocurrencies inspired by memes, viral trends or pop culture, known for their humor, satire or irony. By way of example, following the infamous incident between Will Smith and Chris Rock at the 94th Academy Awards on the 27th of March, 2022, a cryptocurrency called SLAP Coin was introduced into the market just two days later. 

Meme coins can be highly lucrative investment opportunities. But given the fact that many have an uncapped supply, their value can inflate rapidly and deflate just as quickly. Looking again at SLAP Coin, it garnered more than $3 million in trading before collapsing back to almost zero within a week. So, how do meme coins really work, where did they come from, and do these fun, meme-inspired cryptocurrencies have a not-so-funny side? 

The story of the first meme coin

Meme coins were first introduced into the crypto space in 2013. Dogecoin, the pioneer of all meme coins, was launched as a light-hearted satire of the growing hype surrounding mainstream cryptocurrencies like Bitcoin and Ether. It was designed by Billy Markus and Jackson Palmer, who conceived Dogecoin as a fun and accessible alternative to traditional digital currencies with an uncapped supply. 

Despite beginning life in playful jest, Dogecoin quickly gained traction and became a hit on platforms such as Reddit. Its popularity rose further in early 2021 when notable figures such as Elon Musk, Mark Cuban, and Snoop Dogg endorsed it, resulting in an 800% surge in value within 24 hours. This marked the beginning of Dogecoin's frequent fluctuations in value. Over time, it gained a dedicated community following and has even surpassed Bitcoin in daily transaction volume.

Are meme coins dangerous?

Known for their high supply and wild volatility, meme coins can pose significant risks that set them apart from traditional cryptocurrencies. When a single tweet from influential figures like Elon Musk can cause sudden surges or crashes in value, the risk surrounding meme coins becomes crystal clear. While some projects have witnessed substantial gains, they are equally susceptible to abrupt downturns. This volatility attracts speculative traders enticed by the prospect of quick profits but exposes them to considerable financial jeopardy. 

It is important to bear in mind that many meme coins lack intrinsic value, and rely solely on market sentiment, making them vulnerable to ‘pump and dump schemes’ (a form of securities fraud) orchestrated by scammers. With opaque development teams and a lack of transparency, investors are right to be cautious when it comes to assessing these projects’ credibility and longevity. With the right software and a few hundred dollars, anyone can create a meme coin.

Meme coins in 2024

Today, meme coins have evolved beyond their origin as lighthearted internet jokes. With thousands of meme coins circulating the market in 2024, with examples including Dogecoin (DOGE), Shiba Inu (SHIB), and Pepe (PEPE), valued collectively at around $32 billion, their status as a viable digital asset space cannot be overlooked. However, many of these coins have strayed far from their origins as joke-inspired cryptocurrencies. 

Ethan McMahon of Chainalysis highlights the trend of jumping onto trending moments rather than assessing the coin's financial viability. The allure lies in purchasing meme coins early, riding the hype, and exiting before the inevitable crash. This speculative buying and selling could be compared to a game of musical chairs, where audacious players hope to exit before market sentiment shifts. 

Limitlex strongly encourages traders and investors to properly assess the viability and longevity of all crypto projects and fully analyze each investment choice. 

To learn more and start trading with Limitlex, visit limitlex.com.