Why So Much is Going into Meme Coins This Cycle

Another bull cycle, another discussion of what the trending meme coins on social media. We get a flurry of articles claiming to know the “best new meme coins”, mostly from lesser-known D-grade crypto news outlets.

In case you need reminding:

Memecoins should be treated as a joke. Almost all of them are a form of pump-and-dump with no real utility.

However, two main exceptions stand out: Dogecoin (DOGE) and Shiba Inu (SHIB), notably DOGE. These two have defied the odds and have managed to maintain their positions in the top 30, even during the challenging bear market of recent years.

These two have developed major, sustained followings for their respective communities. There’s a lot of activity on the latter’s network, with ShibSwap (a DEX), Shibarium (its Layer-2), Shib the Metaverse, etc.

Nonetheless, even these shouldn’t be taken seriously, and most experienced crypto investors would focus on Bitcoin (BTC) and Ethereum (ETH) as part of their major holdings.

As much as many serious investors want these projects to F off and stop diverting attention away from Bitcoin, Ethereum and other innovative blockchains, the reality is that meme coins will only get bigger.

Here are my reasons why people put so much time and effort into meaningless projects.

Making up for missed opportunities

Many speculate on meme coins hoping to replicate the success of crypto millionaires who managed to pull off 200, 500 or even a whopping 1000x ROI by doing one (or a combo) of the following:

1) Discovering Bitcoin and altcoins before 2017 when they were all dirt cheap.

2) Being an experienced and successful day trader who’s transferred their knowledge to crypto.

3) Successflly leveraging 20, 50 or 100x on BTC or altcoin trades during a bull run and (most importantly) knowing when to take profits and establishing stop losses. Much easier said than done.

Most rookies new to this space do not fall into any of these categories, and those who have a very high-risk tolerance would be inclined to gravitate to something like meme coins.

As Bitcoin and Ethereum also experience diminishing returns relative to previous cycles, some crypto investors are more inclined to dabble in micro caps, small caps and a few animal coins to potentially boost their fortune.

“How a meme coin trader turned $2,000 into $1.2 million.”

“The next DOGE, SHIB, BONK, PEPE…”

“The 1,000x golden opportunity for this cryptocurrency”

You’ve all seen the headlines, particularly as the market starts heating up again.

If this person* managed to get in super early to a meme coin, and it did a 600x because enough people ran along with it, then who’s to say you can’t do it?

*Could also be the creator of said meme coin

In reality, it’s unlikely you’ll be able to do this. Very few holders get in super early to exploit the mammoth ROIs, and these are never guaranteed.

For those who say I’m painting all of these with the same brush and claim I am dismissing the “legit” ones, the odds are stacked against most people.

Trading most of these tokens is a zero-sum game, as these assets and their respective protocols offer no benefit whatsoever (remember, these were designed to be a joke…), unlike Bitcoin, Ethereum, Chainlink, XRP Ledger, etc.

A perfect distraction

Institutional investors would love the average person to become consumed by various altcoins while actively and rapidly accumulating BTC, ETH and, eventually, other blue-chip digital assets.

Meme coins provide an excellent distraction for people who are new to the market and readily act on impulse. At a societal level, many have been conditioned to behave like this for instant gratification.

“The reason a lot of meme coins (and altcoins) exist is to make sure you don’t put your money into Bitcoin.”

The Modern Investor (TMI), 5 June 2024

For context, the total market cap of meme coins/tokens is currently $63.5 billion. While this pales in comparison to $1.4 trillion for BTC or $455 billion for ETH, it would be the fifth-largest crypto by market cap if it were a standalone digital asset.

If you intend to dabble in meme coins, aim for a quick 10-20x and put all the profits into BTC, then that makes sense. But in reality, most individuals don’t do that and let excessive greed get the better of them.

Breaking the cycle

There’s another perspective here that I haven’t yet covered, which could justify why many are banking on significant windfalls from gambling on meme coins/tokens.

Getting out of poverty.

Hear me out.

As I covered earlier, we’ve heard the crypto version of the rags-to-riches stories about how someone pulled off the unthinkable and became a millionaire from a few hundred dollars in a matter of months, not decades, courtesy of a dog, frog or celebrity-themed digital asset.

I don’t believe it is wise to rely on this approach, but I’m not in any position to judge those experiencing generational (or even situational) poverty.

Realistically speaking, most people getting into these ridiculously speculative tokens would be younger people (most of whom have borne the brunt of intergenerational inequity), so I doubt older investors who are new to crypto would feel compelled to dabble in this, at least not many.
When people are desperate, and they’ve seen or heard stories of it working for others, they’ll most likely give it a go, even if the odds are slim.

This is nothing new. The lottery works in similar ways. Participants are informed of the ridiculously low odds of winning the jackpot, and they still buy their weekly tickets, expecting to be the one.

Meme coin enthusiasts could argue the odds are (relatively) better than the lottery because these cycles often coincide with the overall crypto market, a political (or social-media) phenomenon, i.e., a post from Elon Musk, Donald Trump’s MAGA-themed token, etc.

Perhaps, to a certain extent. The truth is most meme coins will have a fleeting moment in the spotlight, only to have “investors” moving profits to pump the next fad, and the cycle repeats.

Additional thoughts

Despite some people creating life-changing gains from meme coins, these people are the exception, not the rule.

Crypto is not a money machine; If anyone tries to convince you otherwise, they’re full of it.

This industry is still in its early stages, particularly considering that Bitcoin and all cryptos combined account for about 0.5% of the world’s money, of which meme coins represent a fraction of this. Let’s not forget that, eventually, trillion-dollar companies will spring up with crypto at the centre of their business model.

For transparency, I have dabbled in a few of these, and I won’t name any as I don’t want to be spruiking them or appear to be doing so.

Meme coins will stick around for as long as we have a gambling culture and, to a certain extent, vast inequality. In other words, these won’t disappear unless a full-scale ban is implemented worldwide, which I doubt will happen.

Ways to support my work

• Check out this post for various affiliate links and promotions you can use to top up (or kick start) your crypto portfolio. By using these, I earn a small commission at no extra cost to you.

https://www.cryptowithlorenzo.com/2023/09/20/ways-to-support-my-crypto-writing-promotions-and-affiliate-links/

Disclaimers

N.B. None of this is financial advice. I am not a financial advisor. You are ultimately responsible for your (investment) decisions.
The opinions expressed within this piece are my own and might not reflect those behind any news outlet, person, organisation, or otherwise listed here.
Please do your own research before investing in any crypto assets, staking, NFTs or other products affiliated with this space.
Information is correct at the time of writing.

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