Meme Coins: A Good Investment?
“Mementum” is growing in the crypto market for a class of coins that offer, well, nothing.
Or do they? That’s what retail traders need to know as “meme” coins break out of the digital currency world and begin to amass large market capitalizations. So, what are these “joke” coins, and should you add them to your crypto portfolio?
First, what’s a meme coin?
A meme coin is a digital currency that at first glance, offers nothing in terms of traditional value. It doesn't provide a service or facilitate digital systems, such as some of the more popular cryptocurrencies such as Ethereum or Tron. Its value is strictly based on popularity.
Like their counterparts in the traditional markets, called “meme stocks,” the value of meme coins defies the old concepts of valuing an asset. The recent GameStock short squeeze, which was driven by online retail traders connecting on Redditt, Twitter and other platforms, is the best example of how social media is redefining value in the markets.
“In most cases, a meme stock is one that sees a value increase primarily fueled by social media attention, and not company performance,” Experian explains.
The same holds true for meme coins. For example, the actual “Meme” (MEME) crypto coin, is described this way by Coin Market Cap:
“The project ostensibly has no aim whatsoever other than to exist for its own sake. There is no associated company or business proposition, and MEME’s developers openly state that the token has no intrinsic value.”
And yet, the coin is trading at $949. “As with any meme, however, its popularity has become viral and interaction has therefore only increased. Intrinsic value, as such, is not a genuine consideration for investors.”
If a meme coin is basically a joke, where’s the value?
Understanding meme coins takes a shift in thinking about how investors define value. Here again, meme coins are just like meme stocks. Trying to review a meme’s fundamentals will bewilder the trader who is looking for a sound investment.
“Meme stocks are essentially stocks that gain popularity online,” The Motley Fool recently stated. “Social media platforms like Reddit and Twitter have an increasingly significant role in how people invest, and when certain groups (like Reddit's WallStreetBets community) promote a certain stock, its price can soar.”
“A meme stock is a stock that has value, not because of any fundamentals like P/E ratio or strong economics, a meme stock has value because the stock ticker has gone viral on social media and garnered the attention of normal people (known as retail investors),” a Forbes contributor commented.
The same holds true with meme coins. Dogecoin (DOGE) the dog-themed meme coin that is grabbing all the social media it can is the most visible example of how value is being defined in the meme-coin space.
“Dogecoin’s meteoric rise can be traced, in part, to fallout from the GameStop saga in March, as individual retail traders who fueled GameStop’s rise turned to joke cryptocurrencies,” Fotune.com said. “Periodic tweets in support of the Dogecoin from Tesla CEO Elon Musk also helped it gain legitimacy.”
This social media connection to value is aptly summarized by a Yahoo! Headline: “Musk tweets, doge leaps and bitcoin retreats.”
Musk, Mark Cuban, Redditt, and Twitter have helped push DOGE to the number 4 spot on the crypto market cap list.
“To be sure, Dogecoin is still up more than 10,000% in 2021, rising from less than half a penny to more than 50 cents,” USA Today recently reported. “The surge in recent months has pushed Dogecoin’s market value to $70 billion, which means it’s worth more than Moderna, Ford and Twitter.”
So, where’s the value?
“The pandemic, and the nascent recovery from it, have caused a whiplash in the fundamentals underlying the value of asset prices everywhere,” Bloomberg said. “Yet at the same time something else has happened: The whimsical entertainment value of some assets has undeniably emerged as a reason investors are bidding prices higher.”
The power of the “whimsical entertainment value” can no longer be ignored, as the recent rise of the coin SHIB, named after the Shiba Inu dog that is the mascot for DOGE, proves. The coin, which was created as a joke on DOGE, SHIB's market cap is currently $8,089,451,964.
“We started from zero, with zero,” the SHIBA INU “WoofPaper states.” “The brilliant minds behind Shib had never collaborated before.” And, simply, “We love Shiba Inu Dogs.”
So, is a meme coin a good investment?
Like meme stocks, meme coins offer opportunity as well as risk. Clearly, as Bitcoin continues to move uncertainly, the crypto market is looking at altcoins, including meme coins, for growth. Retail investors who ascribe to the "YOLO" (you only live once) theory may thrive in the risky up and down environment of memes. These coins continue to move at the tip of the fingers of influencers, as was evident this weekend when DOGE lost 30% after Musk called it a “hustle.”
But every day, and sometimes every hour, brings change in the meme coin world.
“Working with Doge devs to improve system transaction efficiency. Potentially promising,” Musk tweeted hours ago, sending the coin price up nearly 30%.
“You realize it’s supposed to be a joke right?” @JBTHECryptoKing replied.
Who the joke is on remains to be seen in the crypto world.
Joyce Pavia Hanson