A meme coin is a cryptocurrency created as a joke. meme coins often have no use case.
Investing in cryptocurrencies is never without risk, but with meme coins there are a few points that deserve extra attention. Many meme coins have an unlimited supply, meaning that the supply can be expanded indefinitely - with the potential consequence that already existing coins will drop in value as a result. The popularity of meme coins is largely driven by communities and hype on online channels. As a result, the price can suddenly rise very fast which seems attractive to get into, but the price can fall just as fast again. An example of this is the Dogecoin TikTok pump in 2020 where the price rose 95% after TikTok users decided to buy DOGE en masse. Then the price collapsed just as fast again.
Meme coins generally have only 1 purpose: to be traded. There is no use case attached to meme coins in most cases. While some claim to offer functionality it often turns out to be just a sales pitch. Volatility among meme coins is of a completely different level than what larger cryptocurrencies such as Bitcoin (BTC) are used to.
An example of the volatility among meme coins is FLOKI INU. In 2021, FLOKI suddenly popped up everywhere, streetcars and buses all over the world ran FLOKI advertisements, FLOKI became a sponsor of some soccer clubs, and in the Netherlands the advertisement was seen on a ferry of the transport company GVB. Nothing seemed to stop FLOKI on its way to a top-10 position in the crypto market. Since then, the coin has fallen 98% and most people have lost their deposits.
Meme coins are known for high volatility, this plays into people's FOMO as they fear missing out on high profits. Consider that someone who invested $1 in Shiba Inu in March 2021 could have sold it seven months later for $8,000. Another reason for the success of meme coins may have to do with the humor involved. The value of meme coins is normally very low per token which gives people (unfairly) the idea that profits are up for grabs.
The tokenomics of meme coins often inspire little confidence. The supply is often unlimited and a select group of developers is often responsible for all decisions. Thus, if the developers choose to double the supply, the value of a unit may just halve. Also, there is not always a good white paper available and it is not clear if agreements were made in advance about the supply and distribution of these coins.
