Dog and frog coins? The ABCs of a RM234bil joke

Similar to Bitcoin and Ether, memecoins are a type of cryptocurrency; however, they have a unique origin tied to Internet memes and jokes. While Bitcoin and Ether were created with specific financial goals and technological designs in mind, memecoins often start as humorous social experiments or jokes.

Some of the most speculative memecoins introduced over the past few years are now trading at record high values, turning these jokes into costly investments. The collective market value of all memecoins has surpassed US$50 billion (RM234.57 billion).

1. What defines memecoins?

At the core of every memecoin lies a joke or a famous Internet meme. For instance, Dogecoin features a picture of a Shiba Inu dog, while newer memecoins like dogwifhat and Pepe showcase a dog in a hat and a green anthropomorphic frog, respectively.

The technology underlying each memecoin can vary; for instance, Dogecoin is an open-source peer-to-peer digital currency built on its own blockchain, a public ledger tracking ownership and transaction activity. Other memecoins may be built on established blockchains like Ethereum or Solana.

Interestingly, dogs seem to be a popular theme among memecoin creators, who are often anonymous crypto developers.

2. What are some prominent memecoins?

Dogecoin remains a dominant force among memecoins, boasting a market value of over US$22 billion (RM103.21 billion). Other notable memecoins include Shiba Inu, Pepe, Bonk, dogwifhat, and FLOKI. Many memecoins are valued at less than one cent per token, with some created by individuals who have distributed the token supply to only a select group of investors.

3. What is fueling the memecoin frenzy?

Retail investors and promoters view the low prices of memecoins as an opportunity to potentially reap significant returns quickly, despite the lack of traditional foundational support. The surge in memecoin interest typically follows a spike in Bitcoin prices, with memecoins representing a more affordable investment option for many retail traders as Bitcoin becomes increasingly expensive.

Historically, there is usually at least one popular memecoin that garners attention during each cryptocurrency bull market.

4. What sets this memecoin rally apart?

Newer memecoins have a more grassroots origin compared to Dogecoin, which has earned support from notable figures such as Elon Musk and Mark Cuban. However, many of the recently emerged memecoins are not associated with prominent individuals.

For instance, BONK was created on the Solana blockchain following the collapse of the FTX exchange. The creator stated on BONK’s website that the token was launched in part to support the Solana community impacted by the FTX empire’s downfall.

5. What other factors have contributed to the rise of memecoins?

Some memecoins have questionable token distribution practices, with a significant portion of tokens allocated to a select group of investors. This setup allows large holders to influence memecoin prices. Additionally, due to the relatively small market values of memecoins compared to Bitcoin, prices can experience significant fluctuations based on various events.

For example, the price of Shiba Inu coin surged in 2022 following Robinhood’s announcement of its inclusion on the platform.

6. Who stands to benefit and who may face losses?

Early investors who acquired memecoins when they were nearly worthless have the potential to profit the most from the ongoing memecoin rally. Developers and creators of memecoins, particularly those who retain a significant portion of the token supply, also emerge as winners during the memecoin craze.

Cryptocurrency exchanges and brokerages often see increased trading volume during periods of heightened memecoin interest, leading to higher fee revenue. Conversely, retail investors risk losses if they invest in memecoins without fully understanding them.

Furthermore, some memecoins carry a high risk of rug pulls, a type of scam where developers abruptly withdraw liquidity from a project, essentially stealing investors’ funds. With few memecoins subject to third-party code audits, there is also the risk of hackers exploiting vulnerabilities in the underlying code to steal investors’ assets. – Bloomberg