Meme Coins: A Case Study in the Power of Community and FOMO

Ten years ago, two programmers created a “fun and friendly online currency” as a joke to poke fun at the emerging hype around cryptocurrencies. Little did they know that their meme-based “dog” coin would spark a new category of cryptocurrencies known as memecoins.

Today, over 150 memecoins are actively traded, with estimates suggesting there are over 400 in existence. While many have faded into obscurity, the market capitalization of memecoins stands at around $18 billion.

Let’s delve into what memecoins are, their value, their role in the current bull cycle, and how the Fear of Missing Out (FOMO) effect drives the success of some memecoins.

What are meme coins?

Memcoins are cryptocurrencies based on popular Internet memes. This is a vivid example of a financial asset that has no fundamental value and grows in value only because of the interests of the community members.

The first memecoin, Dogecoin (DOGE), appeared thanks to Elon Musk’s favorite meme with a Shiba Inu dog. At the end of 2013, Dogecoin was traded on crypto exchanges at a price of $0.0003-7, in mid-2018, the coin’s exchange rate exceeded $0.01 for the first time, and in May 2021, it briefly reached $0.74. At the time of writing, DOGE’s market capitalization was approximately $14 billion. This means that the project is worth more than the American technology company Dropbox.

Main characteristics of memecoins

Memcoins have several features that distinguish them from other cryptocurrencies. Here are some of them:

Unique approach. Memcoins usually do not have their own blockchains but are created based on existing platforms, such as Ethereum or Binance Smart Chain. This simplifies their launch and distribution but also means that they do not offer any new technological solutions or innovations. Their main value lies in their unique design, name, and concept, which attract attention and evoke emotions among users.
High Volatility. Memcoins are subject to strong price fluctuations that depend on various factors such as news, tweets, rumors, supply, and demand. Their prices can rise or fall by hundreds or thousands of percent in a short period of time, which makes them very risky but also potentially profitable investments. For example, on May 8, 2021, during Elon Musk’s appearance on Saturday Night Live, the price of DOGE dropped by 30% after he called it a “hoax.” On October 10, 2021, after Musk posted a photo of his Floki Inu dog, the price of Floki Inu increased by 1000% in a few hours.
Strong community. Memcoins rely heavily on fans and supporters, who create and maintain their popularity. They actively participate on social media, forums, chat rooms, and other platforms on which they share memes, information, advice, and support. They also organized various promotions, contests, airdrops, and charity campaigns to attract new users and strengthen their reputations. For example, in 2014, the Dogecoin community raised over $50,000 to sponsor the participation of the Jamaican bobsled team during the Olympic Games in Sochi. In 2021, the Shiba Inu community donated more than US $ 1 billion. to combat Covid-19 in India.
Humor. Memcoins do not pretend to be serious and do not set their global goals. These were created for entertainment, jokes, and parodies. They often use irony, sarcasm, overestimation, or underestimation of their values and potential. They also like to make fun of other cryptocurrencies, especially those that are considered competitors or antagonists. For example, Shiba Inu calls himself a “Dogecoin killer” and an “experiment in a decentralized spontaneous community.” And Dogelon Mars promises to “conquer the entire galaxy“ and ”create an interplanetary currency.”
High risk. Memcoins carry significant risks to both investors and developers. Investors risk losing all their funds because of a sharp drop in price, hacker attacks, liquidity drains, failure of smart contracts, or other unforeseen circumstances. Developers run the risk of facing legal problems, accusations of fraud, criticism, or boycotts from the community or regulators. For example, in 2018, the creator of Dogecoin, Jackson Palmer, left the project and the crypto industry as a whole, saying that he had “lost faith” in them due to “toxicity, greed and manipulation.” In 2021, the creator of Shiba Inu, known under the pseudonym Ryoshi, was accused of being the “hidden owner” of the project and receiving undeserved profits from its growth.

As you can see, memcoins have advantages and disadvantages that need to be considered when making investment decisions. In the next part of this article, we examine four well-known memcoins to date.

The Influence of FOMO

FOMO, or the fear of missing out, is a psychological phenomenon that plays a significant role in the success of memecoins. As investors witness the meteoric rise of certain meme coins, they are gripped by the fear of missing out on potential gains, leading them to invest in these assets and further fuel their growth.

However, FOMO’s power in the cryptocurrency market cannot be understood. When a memecoin begins gaining traction through social media buzz, celebrity endorsements, or viral marketing campaigns, it creates a sense of urgency among investors. The fear of missing out on the next big thing drives more people to invest, leading to a self-perpetuating cycle of hype and value appreciation.

The scarcity of memecoins, combined with the speculative nature of the cryptocurrency market, intensifies this phenomenon. With a growing number of investors joining the trend, the demand for these assets rises, causing prices to escalate and perpetuating the Fear of Missing Out (FOMO) effect.

While FOMO accelerates the initial rise of memecoins, it can also result in speculative bubbles and significant market volatility. As more investors succumb to FOMO and jump on board, the value of these assets may detach from their true worth, increasing the risk of sudden crashes and financial losses.

The importance of strong community support

Although FOMO plays a significant role in the initial success of meme coins, their long-term sustainability often depends on the strength of their community support. Meme coin projects that foster a vibrant and engaged community tend to have a higher chance of success as these communities become evangelists for the project, driving adoption and creating a sense of loyalty among investors.

Strong communities can also contribute to the development and evolution of meme coin projects by providing feedback, suggesting improvements, and even contributing to codebases or marketing efforts. This collaborative approach not only strengthens the project but also fosters a sense of ownership among community members, further solidifying their commitment to the project’s success.

Although strong community support can be a boon for memecoin projects, it can also pose risks. In some cases, communities can become echo chambers, amplifying hype and potentially leading to irrational decision-making. Additionally, the decentralized nature of these projects can make it challenging to implement changes or address issues in a timely manner.

Case Studies: Dogecoin and Shiba Inu

No discussion of meme coins would be complete without mentioning Dogecoin and Shiba Inu, two of the most prominent examples of community power and FOMO.

Dogecoin

Dogecoin (DOGE) is by far the most famous and successful member of cryptocurrency history. It was created in 2013 as a joke, a parody of Bitcoin, and a cryptocurrency boom. Its logo was an image of a Shiba Inu dog, which became a popular Internet meme. Since then, Dogecoin has grown into one of the largest cryptocurrencies through market capitalization, reaching the $88 billion mark in May 2021. Its price has reached a record high of $0.74 per coin. One of the main factors in Dogecoin’s growth has been its active promotion by Elon Musk, who often mentioned this in his tweets and interviews. Dogecoin also has a large dedicated community that supports its popularity and humor. Dogecoin is used as a means of exchange and donations on the Internet as well as a way to finance various charitable sports projects.

Shiba Inu

Shiba Inu (SHIB) is a memcoin who is the self-proclaimed killer of Dogecoin. It was launched in August 2020 and uses the image of a Shiba Inu dog as its logo. However, unlike Dogecoin, Shiba Inu has a very large number of coins in circulation–one quadrillion (1015), of which 50% were sent to the wallet of Vitalik Buterin, a co-founder of Ethereum. It was designed to create a supply shortage and increase demand for coins. However, in May 2021, Buterin decided to donate approximately 50 trillion SHIB (worth more than $1 billion) to fight COVID-19 in India, leading to a 50% drop in the price of the coin. Shiba Inu also aims to create its ecosystem from various tokens, a decentralized exchanger (DEX) and non-interchangeable tokens (NFT). Its market capitalization currently stands at approximately $3.6 billion.

Risks and Challenges

Investing in members carries a significant risk for both investors and developers. Investors risk losing all their funds due to a sharp drop in price, hacker attacks, liquidity drains, failure of smart contracts, or other unforeseen circumstances. Developers run the risk of facing legal problems, accusations of fraud, criticism, or boycotts from the community or regulators. Therefore, before investing in memcoins, the following factors must be considered.

Do your own research on the project, team, and market conditions.
Evaluate the real value and functionality of the members
Be aware of your responsibilities in accordance with the regulations of your jurisdiction.
Diversify your portfolio by investing in different members and projects.
Do not invest more than you can afford to lose
Do not give in to panic or greed, always lose stop lose orders when it comes to marginal trading.
Be prepared for possible losses.

Conclusion

Memecoins are a buzz-worthy and divisive trend in the cryptocurrency world, created for entertainment and parody but also used for transactions and charitable purposes. They offer both potential gains from speculation and the risk of losing your investment entirely.

To navigate this volatile market, stay informed through social media and news sources and consider memecoin mentions by influencers. Treat meme coin investments as a form of gambling, only risking what you can afford to lose. It may be wiser for most investors to focus on assets with stronger fundamentals.