Overview of Memecoins

Key Takeaways

• Memecoins are highly speculative cryptocurrencies often driven by internet memes and viral trends. Dogecoin (DOGE) and Shiba Inu (SHIB) are two well-known examples of memecoins.
• They lack intrinsic utility, with their value typically influenced by social media and community hype rather than practical use cases​.
• Many fail to sustain value over time, underscoring their reputation as being arguably the riskiest type of cryptocurrency.
• Certain blockchains, such as Solana, have become hotspots for memecoin creation because of their ability to process fast and cheap transactions.

What Are Memecoins?

Memecoins are cryptocurrencies inspired by cultural phenomena, memes, or trends on the internet. Unlike traditional cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH), which are underpinned by specific technologies or utilities, memecoins primarily serve speculative and entertainment purposes, with their value often being driven by community engagement and social media.

These coins generally lack intrinsic utility or advanced technology, focusing instead on their community-driven nature and viral appeal. This has led to significant spikes in popularity and value for some memecoins, particularly during bull markets. However, their dependence on social media trends and fleeting hype makes them some of the most unpredictable assets in the crypto space​​.

Memecoins accounted for an increasing amount of mindshare throughout 2024 (Source: Kaito)

The Memecoin Narrative

Solana (SOL) is a dominant player in the memecoin space thanks to its ability to process fast and cheap transactions. These features make it easy for creators and traders to experiment with new coins without the high fees seen on other networks like Ethereum. Solana’s efficiency has attracted a vibrant community of memecoin enthusiasts, driving creativity and speculation​​.

A major contributor to this growth is Pump.fun, a platform on Solana that allows anyone, even with minimal technical knowledge, to create their own memecoins. Millions of memecoins have been created on Pump.fun, transforming internet jokes into tradable assets. This platform has lowered the barriers to entry, making memecoins more accessible while fostering a thriving and fast-evolving ecosystem​​.

Usage of Pump.fun throughout 2024 (Source: Dune)

Risks of Memecoins

Extreme Volatility

Memecoins are notorious for their price swings, often tied to social media trends. This volatility can lead to significant short-term gains as well as sharp losses once the hype diminishes. This makes them highly unpredictable, with many people left holding "bags" of coins that have lost nearly their value​​.

Lack of Fundamental Value

Unlike cryptocurrencies with defined utilities, memecoins rarely provide tangible use cases. Their speculative nature means most fail to sustain their value over time, leading to substantial losses for many holders​​.

Winner-Takes-All Dynamics

Memecoins often operate in a winner-takes-all environment, where success hinges on capturing and sustaining attention. Speculators are driven by the hope of making quick profits, yet no one wants to be left holding a token that has lost its value. This creates a high-stakes, competitive atmosphere that can quickly lead to mass sell-offs and dramatic price collapses when interest wanes​​.

Potential Rewards of Memecoins

If they gain significant attention, memecoins can yield substantial returns for early adopters. Occasionally, some memecoins such as DOGE, WIF, and PEPE manage to entrench themselves in the market, growing to multi-billion market caps with enormous followings.

In 2024, political memecoins started trending, with tokens themed around election candidates and political events generating eye-watering gains in a short period. However, these coins faded into irrelevance and haemorrhaged value shortly after the U.S. election in early November.

Trump-themed memecoin down 90% even though he won the election

More recently, AI-themed memecoins have captured the crypto community's attention. With narratives tied to artificial intelligence (AI), these tokens have driven enormous price movements, benefiting from the ongoing buzz around AI technology.

One example is Goatseus Maximum (GOAT), an AI-themed memecoin that grew explosively in October by tapping into the excitement around AI innovation and an origin story that featured Marc Andreessen, the high-profile co-founder of venture capital firm Andreessen Horowitz​​.

Are Memecoins Here to Stay?

Memecoins have cemented themselves as a cultural staple in crypto. Dogecoin is evidence that memecoins can achieve lasting significance, evolving from a joke into a widely recognised and traded asset.

However, the vast majority of memecoins tend to lose relevance fairly quickly, as their success relies heavily on maintaining public attention and community enthusiasm. As the below graphic illustrates, until 2024 arrived, it was rather uncommon to see a memecoin ranked inside the top 200 cryptocurrencies by market cap.

As of Nov. 25, 2024, there are 23 memecoins in the top 200 by market cap (Source: CoinGecko)

While their long-term viability is uncertain due to their reliance on trends and viral appeal, the recurring popularity of memecoins suggests they may remain an active part of the broader crypto ecosystem. Emerging blockchain innovations and increasing accessibility could also enable their further adoption, particularly as "fun" gateways into the world of cryptocurrency​​.

Conclusion

Memecoins highlight the speculative and community-driven side of the cryptocurrency world. While their whimsical nature attracts attention and newcomers, their inherent lack of fundamental value underscores the need for caution.

Time will tell whether memecoins can remain a sizeable component of the crypto market. Their ability to do so will likely be affected by the resilience of the associated communities and the extent to which there are advancements in blockchain technology.