What is a meme coin?

What is a meme coin?

Meme coins, also spelled memecoins, are a type of cryptocurrency that often start as light-hearted internet memes (creative, often humorous content that circulates throughout the internet or social media) or popular culture. They often lack real-work utility and fundamentals but have become popularised due to internet hype. 

Unlike major cryptocurrencies like Bitcoin, meme coins usually don't have significant technical support but rather rely on the vibrant support of their community. These coins operate on the same blockchain technology as other cryptocurrencies, allowing them to integrate into the broader digital currency landscape. However, it’s predominantly  the community-driven enthusiasm, rather thanthe technical innovations or underlying blockchain network that often propels their value.

The origin of meme coins

Launched in 2013 and inspired by the “Doge” meme, Dogecoin (DOGE) quickly captured attention beyond its initial parody status. This led to the creation of a lively community that cherished its lighthearted theme, setting it apart from other cryptocurrencies like Bitcoin (BTC). 

Dogecoin’s branding and community-driven approach allowed the coin to gain mutual trust among its supporters, leading to viral marketing schemes that further popularised it. Its success paved the path for other meme-based cryptocurrencies, setting the stage for a transformative shift within the crypto landscape.

Meme coin vs crypto: What is the difference?

Although still considered a cryptocurrency, meme coins have unique characteristics setting them apart from other cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). In contrast to these traditional cryptocurrencies based on more sophisticated technology and real-world utility, meme coins are driven by social media hype, causing them to hold an even higher speculative risk. 

Here are some of the key differences:

• Utility versus hype: Meme coins may gain rapid fame through internet communities and social media trends but often lack intrinsic value.

• Primary driver: Traditional cryptocurrencies aim to provide tangible economic solutions, while meme coins usually start as parodies or cultural trends.

• Value driver: Community involvement is crucial for the success of meme coins, while more established cryptocurrencies are typically tied to adoption, technology, and scarcity.

• Volatility: While all crypto carries risk, meme coins are extremely volatile, with prices showing severe spikes or drops based on pop-culture influence, or lack thereof.

Recognising these differences can help potential investors navigate the volatile world of crypto meme coins and traditional cryptocurrencies. Remember to assess both the benefits and risks before making any decisions. Don’t invest unless you’re prepared to lose all the money you invest. 

This content is for information purposes only and does not constitute investment advice. Nothing here should be deemed personal financial advice or a recommendation to invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong.

How do meme coins work?

Meme coins work similarly to other cryptocurrencies, based on blockchain technology, which provides a decentralised and secure environment for transactions without the need for a central authority. Users can buy, hold, or trade meme coins on various crypto exchanges, with their value mainly determined by supply and demand.

Their difference lies in how they mobilise fans for specific topics or fun content, often leading to viral marketing campaigns that increase their popularity. Despite their light-hearted origin, meme coin trading requires an understanding of crypto market trends and risk management, as they are known for their extremely high volatility.

How to buy meme coins

Buying and trading popular meme coins functions similarly to other cryptocurrencies. They are often built on blockchain networks, such as Ethereum, following the ERC-20 token standard. However, what sets them apart from other cryptocurrencies is that they generally lack a defined utility, functioning primarily as speculative assets instead.

Here’s a step-by-step overview of how to purchase meme coins:

1. Choose a crypto platform: Research various cryptocurrency trading platforms and apps and select one to start with, you may want to ensure your meme coin of interest is offered on your platform of choice.

2. Create and verify your account: Follow the instructions to set up and verify your account.

3. Deposit funds: Add money to your account by using a bank transfer, debit card, or other option your selected platform provides.

4. Buy a meme coin: Search for the meme coin you want to buy, choose how much money to invest, and confirm your purchase.

Platforms like Bitpanda allow you to purchase popular meme coins such as Doge (DOGE) and Shiba Inu (SHIB), however, some newer or low-cap meme coins may not be listed. In this case, you would still need a crypto wallet to make a purchase, but this would be carried out by buying a base cryptocurrency (such as ETH) and using a decentralised exchange (DEX).

Potential benefits and risks of investing in meme coins

Before investing in meme coins, or deciding which meme coin to buy, it is important to consider the potential benefits and drawbacks of this type of asset.

Benefits

• Potential for high returns: Due to the extreme volatility of meme coins, investors can potentially generate high, short-term profits if exit and entry are timed correctly.

• Low entry cost: Compared to other cryptocurrencies, meme coins are often priced at fractions of a cent, making them highly affordable.

• Online community engagement: Some meme coins have dedicated and active online communities, which may foster a sense of belonging to certain cultural phenomena and participation in social media trends.

• Internet culture and virality: The reliance on social media and internet culture to promote meme coins allow them to quickly gain popularity in short amounts of time.

Risks

• Extremely high volatility and risk: Prices can drop as fast as they rise, and popularity can decrease overnight, leading to significant or total losses.

• Lack utility and fundamental value: Unlike Bitcoin or stablecoins, many meme coins lack practical purposes and have no underlying use case.

• Higher risk of scams or rug pulls: Many meme coins are launched by anonymous developers and flashy marketing, and developers can quickly pull liquidity, leaving investors with worthless tokens or coins.

• Short-lived:  Due to the reliance on internet trends and support, this leads to many meme coins having a short lifespan, often not surpassing a year.

Conducting your own research is crucial before purchasing a meme coin, especially since they function more as “collectible” internet culture items, rather than typical financial assets. Crypto meme coins are an extremely high-risk investment and should not be treated as a long-term investment. Only invest what you can afford to lose, and do not invest without being prepared to lose your entire investment.

Trading meme coins: What beginners should keep in mind

Investing in meme coins is a high-risk activity, therefore, beginner investors may want to treat this market as speculation. Here is what beginners should keep in mind before trading crypto meme coins:

• Ensure your investments are diverse to help better manage risk. 

• Regular analysis of market conditions is crucial, as it helps you make better decisions amidst the unpredictabilities of trading. 

• Staying cautious can prevent hasty moves based solely on hype.

• Use tools to ensure contracts are legitimate and do not contain honeypot codes, which would prevent selling.

• Ensure you are aware of transaction fees, to avoid unexpected high expenses.

• There is no one best crypto meme coin to buy, but doing your own research beforehand is crucial.

• Remember a crypto wallet is needed for managing your crypto investments, but platforms or exchanges will handle it for you.

Regulatory considerations in the UK regarding meme coins

In the UK, understanding the guidelines for trading cryptocurrency tokens issued by the Financial Conduct Authority (FCA) is crucial. These rules offer investors clear insight into regulatory risks and compliance terms. 

Staying informed about these guidelines lets investors engage in digital currency with confidence, making their trading practices safe and informed in this ever-evolving landscape.

Conclusion: Should I buy meme coins?

Meme coins represent a unique and highly speculative corner of the cryptocurrency market, blending internet culture with digital finance. Their rapid rise in popularity highlights the power of online communities and viral trends in shaping financial markets.

While they can offer exciting opportunities for short-term gains, they also come with significant risks, including extreme volatility, lack of fundamental value, and potential scams. Unlike more established cryptocurrencies, meme coins often rely heavily on sentiment rather than real-world assets or utility.

For anyone considering investing, it’s essential to approach crypto meme coins with caution, conduct thorough research, and only invest what you can afford to lose. In most cases, they are better viewed as speculative assets rather than long-term investments.

More cryptocurrency guides

Want to learn more about cryptocurrencies? In the Bitpanda Knowledge Hub, you’ll find a wide range of guides and tutorials explaining the basics, from the differences between a crypto broker and exchange to getting started with crypto trading.