Memecoins or meme cryptocurrencies started as a cultural phenomenon with the launch of Dogecoin (DOGE) in 2013, inspired by an internet meme and criticism of the wild crypto market at the time.
Dogecoin was developed by software developers Billy Markus and Jackson Palmer as a joke to mock what many saw as the irrational investment hype surrounding cryptocurrencies.
Memecoins started as a form of social token. They were often created and promoted by online communities or individuals with a common interest or sense of humor. The social element of memecoins has played a significant role in their success and adoption. Other reasons for their popularity could be the substantial total supply and low token prices.
Ten years later, memecoins are a multi-billion dollar ecosystem, popular as a high-risk speculative investment.
From DOGE to Pepecoin (PEPE), memecoins have closed. From their initial inspiration as a parody of crypto-currencies to the present day being the same parody they mocked and attracting irrational speculative investments to drive up prices.
Pepecoin’s popularity helped it explode to a market cap of over $1 billion, but within days, its market cap dropped by more than 40% to less than $600 million.
Ironically, the concept of memecoins has become a meme itself. While there are always stories of how a random trader turned a few hundred dollar investment into millions; for that one lucky trader, many others lose their life savings.
The bull run of 2021 is a turning point for memecoins
The bull market in 2021 turned memecoins from parodies to legitimate investment options. Before 2021, memecoins were primarily based on social media and their popularity was driven by strong internet communities. That changed when the unofficial ambassador of DOGE appeared — Elon Musk.
Musk has become an ardent supporter of DOGE, and the community behind him has declared him the unofficial CEO of the project. The Musk-Doge relationship began as a continuation of the meme concept. Musk has said on many occasions that he loves memes, which is why he loved the idea of a cryptocurrency like DOGE.
With a bull run in 2021 supported by increased institutional interest in cryptocurrencies and Bitcoin (BTC), Musk began presenting DOGE as a true internet currency. The backing of a tech billionaire has done wonders for memecoin’s price an increase of 23,000% in 2021.
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With the surge of Dogecoin, the memecoin craze has become a new phenomenon in the crypto market. This has attracted many new entrants – from seasoned traders to everyday people – to the crypto market hoping to ride the bullish wave. Other memecoins began to appear, with many of the newly minted tokens seeing multi-digit price increases, sometimes just based on a tweet from Musk himself.
The memecoin craze of 2021 has made many new crypto millionaires and attracted new traders to the ecosystem. In the year memecoins broke into the top 5 cryptocurrencies by market cap, there was no shortage of trader stories lose your life savings after buying tokens at market peaks or believing that Musk will continue to positively influence prices.
Many new traders tweeted at Musk to post about DOGE; however, once the frenzy died down, the token lost over 90% of its value.
Since the DOGE craze of 2021, the market has been flooded with tens of thousands of memecoins and “shitcoins” trying to become the next Dogecoin or Shiba Inu (SHIB).
Anjali Young, co-founder of community-focused blockchain app development platform Abridged, told Cointelegraph that the current memecoin craze is all about managing the fear of missing out (FOMO).
“One crucial point is managing FOMO. There are many approaches to handle this and the best thing is to find one that works for you. It helps for some to formulate a buying thesis and stick to it, or invest only what they are prepared to lose. That being said, it’s important to mention that with cryptocurrency operating 24/7, it’s easy to get carried away by the constant influx of news and trading activity. When you succumb to FOMO, learn from it and move on. And then get back to managing that FOMO,” she explained.
An era of anonymous meme tokens full of scammers and carpetbaggers
In addition to the speculative frenzy with memecoins, observers were concerned about the risks posed by the new cryptocurrencies.
New anonymous memecoins often come with many smart contract vulnerabilities, including closed-source contracts, proxy-based contract mechanisms, tradable logic with a pause function (risk of pulling the rug out), and high sales tax setups that prevent token sales. These vulnerabilities can potentially lead to merchant losses.
Gracy Chen, CEO of crypto exchange Bitget, told Cointelegraph that while the original memecoins like DOGE and SHIB still have a solid community base, the new closed source and anonymous meme tokens are mostly scams.
“Most new era memecoins are anonymous in nature with many vulnerable contracts. Some memecoin issuers focus on a large number of tokens in one EOA [externally owned account] address or distribute to multiple addresses under their control, which presents a significant risk of short-term dumping. When trading memecoins, especially newly seeded ones, it is essential to exercise extreme caution and do your own research,” explained Chen.
The dark side of the craze manifested itself in 2023 when several new scam tokens were launched in the guise of a meme currency.
In May, blockchain analytics firm PeckShield released a report warning the crypto community to beware of fake meme tokens. The security firm listed 24 fraudulent meme tokens created in the first week of May.
#PeckShieldAlert We found a number #rugpulls involving the creation of ~24 Scam #MEMES Tokens for the last 10 days. #SHITTING, #ASSETS, #WorldCoin, #MONKEY, #ERDR, #Magneto, #STARK, #SUBSTANCE, #LADYBOY, #USACOIN, #WLD, #POGO, #Miniclip, #PORN, #FROGS, #RNDT, #PSYOP,… pic.twitter.com/KlBX5k9Go6
— PeckShieldAlert (@PeckShieldAlert) May 23, 2023
ZachXBT, an online detective known for detecting scams, highlighted how one account created 114 fraudulent meme tokens in just over a month.
Another popular memecoin scam came from the moderator of the popular trading subreddit r/WallStreetBets. The group created a memecoin called WSB Coin (WSB), claimed to be the official memecoin of Wall Street Bets, and launched it on May 2. The developers of the WSB token claimed that 10% of the coins would be reserved for the subreddit, with no allocation for the team.
May 4 moderator they threw away a significant portion of the meme token on the market and within two days the price of the token has plummeted from an all-time high of $0.00067279 to an all-time low of $0.00004827 at the time of writing.
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According to the original vision of Satoshi Nakamoto, the purpose of cryptocurrencies is to solve the limitations of traditional finance and provide greater access for all. While some people have achieved financial freedom by speculating with memecoins, looking at history most people end up on the losing side.
Kadan Stadelmann, CTO of Komodo, told Cointelegraph that there are two main reasons why the current memecoin investment trend is bad for the crypto ecosystem:
“First, it dilutes potential funding that could otherwise go to serious projects that have more innovative technologies and real use cases. Second, many portfolios will lose value as a result of not selling at the peak or chasing fraudulent projects.”