Dogecoin remains the king of memecoins, with a market value of more than US$22bil (RM103.21bil). — Photo by Kanchanara on Unsplash
Memecoins are a type of cryptocurrency that originated from Internet memes or jokes. Unlike other well-known cryptocurrencies such as Bitcoin and Ether, which were created with specific financial goals or technological designs, memecoins often start as jokes or social experiments.
Some of the most speculative cryptocurrencies introduced in the last few years are trading at record highs, making the jokes expensive ones: The total market value of all memecoins is more than US$50bil (RM234.57bil).
1. What are memecoins?
At the centre of every memecoin is a joke or a famous Internet meme. For the original memecoin, Dogecoin, it’s a picture of a Shiba Inu dog. For newcomers dogwifhat and Pepe, it’s quite literally a dog wearing a hat and a green anthropomorphic frog, respectively.
The technology behind each memecoin varies. Dogecoin, for example, is an open source peer-to-peer digital currency built on top of its own “blockchain”, which is a public ledger of ownership and transaction activity. Other memecoins are built on popular blockchains like Ethereum or Solana.
For unknown reasons, dogs have always been the most popular choice of themes for memecoin creators, who are usually anonymous crypto developers.
2. What are the biggest memecoins?
Dogecoin remains the king of memecoins, with a market value of more than US$22bil (RM103.21bil). The other memecoins with large market values include Shiba Inu, Pepe, Bonk, dogwifhat and FLOKI. Most of the memecoins are worth less than one cent per token, and some memecoins are created by people who kept most of the token supply to only a small group of investors.
3. What’s driving the memecoin rally?
Retail investors and promoters regard the microscopic prices of memecoins as an opportunity to quickly post huge returns despite a lack of traditional fundamentals. A memecoin frenzy usually takes place after a large price run-up in Bitcoin. With Bitcoin becoming more expensive, memecoins are a much cheaper investment option for many retail traders. In general, there’s almost always at least one popular memecoin that stands out during each bull market in crypto.
4. What’s different this time?
The new memecoins appear to have a more grassroots origin story compared with dogecoin. Dogecoin is known for its celebrity backers, most notably Elon Musk, the co-founder of Tesla Inc, and Dallas Mavericks owner Mark Cuban. But few of the other memecoins are linked to any prominent figures.
BONK, for example, was created on the Solana blockchain right after the collapse of FTX exchange. The creator said on BONK’s website that the token was launched partly to “reward” the Solana community, which was hurt by its association with the FTX empire.
5. What else drove it up?
Many memecoins have questionable distribution for their tokens, meaning that a large number of the tokens went to a small group of investors. It’s easy for the large holders to move the price of the memecoins up and down. Also, because memecoins’ market values are much smaller than Bitcoin’s, memecoins’ prices can move significantly on events. The price of Shiba Inu coin jumped in 2022 after Robinhood announced that it would include the token on its platform.
6. Who gains and who loses?
The early investors who bought the memecoins when they were worth nearly zero stand to make the most profit from the memecoin rally. The developers and creators of memecoins are also winners of the memecoin frenzy, especially when they have a large portion of the token supply. Crypto exchanges and brokerages are another often overlooked winner. They see increased trading volume when there’s a lot of interest in memecoins, leading to greater fee revenue.
Retail investors can lose on memecoins when they get into coins they barely understand. Some memecoins also have high risks of running a rug pull, a type of scam where developers suddenly remove liquidity from a project, essentially stealing investors’ money. Few memecoins have third-party auditors for their codes, suggesting that hackers could attack the vulnerability in underlying codes and steal money from investors. – Bloomberg
