Everything you need to know about memecoins

Memecoins have become one of the most talked-about trends in the crypto world. They are a type of crypto asset fueled by their ‘virality’ that are primarily based on internet jokes, social media trends and other moments in popular culture around which an online community can gather. 

Despite their playful underpinnings, memecoins have grown into a major asset class within the crypto space – Dogecoin, for example, has consistently ranked among the top 10 cryptocurrencies by market capitalisation. 

What are memecoins? 

Memecoins are cryptocurrencies that often start as jokes or internet trends but gain value through community hype and speculation. The most famous example is Dogecoin (DOGE), which is based on a popular 2010 meme of a Shiba Inu named Kabosu. DOGE was created in 2013 as a parody of Bitcoin, but later gained traction thanks to endorsements from influential people like Elon Musk. Another well-known memecoin is Shiba Inu (SHIB), which is similarly based on the Shiba Inu meme and was launched as a “Dogecoin killer”, quickly building a large following after its launch in 2020.

How do memecoins work?

Most memecoins are built on top of existing blockchain networks like Ethereum. However, some like Dogecoin run on their own independent blockchains. Unlike traditional cryptocurrencies, memecoins typically don’t offer unique technological innovations but rely on community-driven momentum for their value.

What gives memecoins value?

Memecoins derive their value from demand driven by network effects created by social media buzz and community enthusiasm. Their popularity is usually driven by one of a number of factors:

• Viral trends: Many memecoins gain popularity through viral social media campaigns, influencer endorsements, and pop culture references. Their connection to internet memes or online communities can generate excitement and FOMO (fear of missing out) among potential investors.
  
  
• Community influence: Dedicated communities often form around memecoins, with members actively promoting them, creating memes, and driving engagement on social platforms. This collective enthusiasm can attract new buyers, increasing demand and pushing up the coin’s price.
  
  
• Speculative trading: The fast-moving nature of the crypto market makes memecoins a target for traders looking to capitalise on price swings. Many investors buy in hoping to sell at a profit, even if the memecoin has little real-world utility. Their prices can fluctuate wildly, leading to both potential significant gains and losses.
  

Controversy around memecoins

Memecoins are interesting for a number of reasons. To some, they’re a fun way to engage with a community around a cultural phenomenon – they sit at an intersection of pop culture, community, and economics as a way to monetise a moment in time in a way that didn’t exist online before.   

To others, memecoins undermine efforts to legitimise decentralised projects that use crypto in an attempt to make a tangible difference in the world. Critics argue that they offer no real utility, and instead leech value and attention away from utility-focused projects. They also argue that they reinforce stereotypes that the crypto market is strictly speculative, which puts people off the industry.

Whatever your point of view, memecoins do present specific risks that we need to be aware of. Their reliance on flashpoints of hype as a driver of growth means that the price can increase at unprecedented rates, even by the standards of the crypto industry. This has led some to exploit memecoins for their own benefit, and they are particularly susceptible to ‘pump and dump’ schemes. The recent scandal around the $HAWK memecoin, based on a notorious viral video, is just one example of where a community has been exploited and many lost their money.  

At Luno, we now list *Dogecoin, one of the most established memecoins. Since making it available to customers, this has seen rapid growth, but also a great deal of volatility. We do everything possible to make customers aware of the risks and educate them on how to avoid them. As the market evolves, we’ll continue assessing other established memecoins to expand our offering.

*Dogecoin (DOGE) is only available on Luno in certain regions.

**This information is not intended to be nor does it constitute financial, tax, legal, investment or other advice; nor is it a call to trade. The information is intended as general market commentary for information purposes only. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Advisor.