What are meme coins?

In 2021, the market for meme coins saw exponential growth, especially dog-themed meme coins. As of November 2021, one of the most popular "breeds" is Dogecoin (DOGE), along with its rival Shiba Inu (SHIB).

Meme coins are cryptocurrencies inspired by memes. Compared to major cryptocurrencies like Bitcoin (BTC) and Ether (ETH), they tend to be very volatile. This is probably because meme coins are largely community driven tokens. Their price is often influenced by sentiment on social media and online communities. This often leads to high expectations, but also FOMO and financial risk. While it is true that some traders got rich off meme coins, many lost money due to market volatility.

Some say that 2021 was the year of the “dogs” in the crypto world. The canine duo Dogecoin (DOGE) and Shiba Inu (SHIB) led the pack of meme coins and skyrocketed in price and market cap. As of November 2021, DOGE has gained over 8,000% since the start of the year, and is ranked 9th by market cap on CoinMarketCap. Its competitor, SHIB, has increased more than 60,000,000% since January.

What are meme coins?

Meme coins are cryptocurrencies inspired by memes or jokes from the internet and social networks. The first meme coin to be created was Dogecoin (DOGE). It was released in 2013 as a parody inspired by the popular Doge meme of a Japanese Shiba Inu dog.

Meme coins tend to be very volatile. They are primarily community driven, and can become very popular overnight as a result of support from online communities and FOMO. Still, its price may also crash unexpectedly if traders turn their attention to the next meme coin.

Another characteristic of meme coins is that they are often in huge or unlimited supply. For example, Shiba Inu (SHIB) has a total supply of 1 billion tokens, while DOGE does not have a maximum supply, and more than 100 billion tokens are already in circulation. Since meme tokens generally do not have a coin burn mechanism, their huge supply explains their relatively low prices. With just 1 USD, you can buy millions of meme tokens.

Why are meme coins so popular?

Although it is difficult to define specific reasons, some say that during the COVID-19 pandemic the cryptocurrency market reflected growth as retail investors sought to hedge against inflation. Meme coins also flourished amidst this rush, growing in both market cap and variety.

It all started after the GameStop (GME) and AMC Entertainment (AMC) "meme stock" saga at the end of 2020, when the Reddit community inflated the price of these stocks by up to 100 times in a few months. In January 2021, a group on Reddit joked about possibly boosting the price of DOGE to create a crypto equivalent of GME. The trend caught on, and along with the influence of Tesla CEO Elon Musk's tweets, the price of DOGE skyrocketed. Dogecoin hit a new all-time high of $0.73, up more than 2,000% in five days.

However, in May 2021, Elon Musk publicly joked about DOGE on TV, and many consider that to be the cause of the subsequent price drop. Many traders then turned to other meme coins on the market, such as the "Dogecoin killer" SHIB. In turn, retail investors felt FOMO and bought meme coins in the hope of becoming millionaires overnight, sparking another bull run for meme coins.

Another reason retail investors find meme coins attractive is that they typically only cost a few cents or even a fraction of a cent. Technically, their low price doesn't mean much, given that these coins are in huge supply. Still, owning millions of tokens of a certain meme coin feels different than holding a fraction of ETH or BTC. Traders can earn thousands or even millions of DOGE, SHIB, or Akita Inu (AKITA) tokens with just a few dollars.

Aside from being driven by the possibility of huge profits, the meme coin craze is also influenced by their respective communities. As we have mentioned, meme coins are inspired by popular internet memes and their purpose is to entertain; often, they are considered "inside jokes" of a community. Buying meme coins, in a sense, is a show of support for their respective communities. Following the GME stock market saga, meme coin traders inspired by the Reddit group SatoshiStreetBets began a “David vs. Goliath” battle by betting against the dominant cryptocurrencies. Because of this, the cryptocurrency market in 2021 has been flooded with community-driven meme coins.

Potential Risks of Investing in Meme Coins

Meme coins may have seen exponential growth in 2021, but as with all cryptocurrencies, trading and investing in them carries high financial risk.

First of all, the tokenomy of meme coins can be concerning. Let's take Bitcoin as an example. It has its blockchain, a well-written whitepaper, a well-established ecosystem, and a deflationary nature. Additionally, we have seen increased institutional adoption of Bitcoin in recent years. Compared to BTC, most meme coins are inflationary and do not have a maximum supply. Its ecosystem, use cases, and fundamentals are often defined by the collective jokes of the community. Only a few meme coins have been created from the technology of the main cryptocurrencies. For example, DOGE's technology derives from Litecoin (LTC), while SHIB was built on the Ethereum blockchain.

Another potential risk is that meme coins are largely community-driven and more speculative than cryptocurrencies with larger market caps. This volatility constantly leads to unexpected cycles of inflation and selling. The life cycle of meme coins is generally short. Their prices can rise thousands of times due to celebrity hype or FOMO, or plunge unexpectedly when the community decides to move on to the next meme coin.

As the market for meme coins continues to grow, be aware that there may be projects that take advantage of the hype to scam traders. For example, Squid Game (SQUID), a meme coin inspired by the popular Netflix series, appreciated more than 86,000% in just one week. However, the development team of the project suddenly applied a rug pull, taking all the funds, which caused the price to crash by 99%. The worst thing is that the holders were not allowed to sell their SQUID tokens. Therefore, you should always be careful and do your own research (DYOR, Do Your Own Research) before trading or investing in meme coins.

Overview of Popular Meme Coins

Dogecoin (DOGE) and Shiba Inu (SHIB) are the market leaders of the meme coins with the highest market capitalizations. Following the success of DOGE and SHIB, a large number of dog-themed meme coins entered the market and gained traction during the second half of 2021.

Dogecoin (DOGE)

Dogecoin (DOGE) was created in 2013 by software engineers Billy Markus and Jackson Palmer. It is inspired by the meme of a Shiba Inu dog, and was intended as a joke cryptocurrency to attract the attention of the general public. Being a Litecoin (LTC) fork, DOGE adopts the same Proof of Work (POW) mechanism and lacks a maximum supply. For a more in-depth description of DOGE, see What is Dogecoin?.

Shiba Inu (SHIB)

Shiba Inu (SHIB) is DOGE's rival and is often referred to as the "Dogecoin killer". The name of SHIB comes from a breed of dog of Japanese origin. It was created in August 2020 by an anonymous developer named Ryoshi. The main difference between DOGE and SHIB is that the latter has a limited supply of 1 billion tokens, of which 50% were burned and donated to charity. The SHIB ecosystem also includes a decentralized exchange, an NFT art incubator, as well as various NFTs and an NFT game.

To learn more about SHIB and its ecosystem, see What is Shiba Inu (SHIB)?.

Dogelon Mars (ELON)

Dogelon Mars (ELON) closely follows the canine duo in terms of popularity. As the name suggests, ELON takes its name from Tesla CEO Elon Musk and his passion for his company SpaceX. ELON is a fork of Dogecoin and has a circulating supply of 557 billion tokens. From its launch in April 2021 to November 2021, the price of ELON has increased by more than 3,780%.

Akita Inu (AKITA)

There are many other meme coins that use Japanese dog breeds as pets, for example Akita Inu (AKITA), Kishu Inu (KISHU) and Floki Inu (FLOKI). AKITA was heavily inspired by DOGE. It was launched on Uniswap as an ERC-20 token in February 2021. Its tokenomy is very similar to SHIB. Like SHIB developer Ryoshi did, the AKITA team locked up 50% of their total supply in Uniswap, while the remaining 50% was sent to Ethereum co-founder Vitalik Buterin. However, the total supply of AKITA is only 100 billion tokens, which is 1/10 of the total supply of SHIB. AKITA gained traction along with the rest of the dogcoins in May 2021, and is considered by some in the community to be another "Dogecoin killer".

Samoyedcoin (SAMO)

Samoyedcoin (SAMO) is a canine meme coin project built on the Solana blockchain. At the time of its launch, 13% of the SAMO supply was airdropped to community members. According to its website, SAMO's roadmap includes coin burn events, airdrop tools, a decentralized exchange (DEX), and the creation of NFTs. Samoyedcoin recently gained popularity due to a sudden price increase. SAMO appreciated more than 4,300% in the course of a month. In October 2021, the price went from 0.005 USD to more than 0.22 USD in just 30 days.

Kishu Inu (KISHU)

Kishu Inu (KISHU), another dog-themed meme coin, has grown exponentially since its launch in April 2021. KISHU includes staking rewards for active users, non-fungible tokens (NFTs), and a DEX called Kishu Swap. Its popularity has been growing and it has registered more than 100,000 holders and two billion dollars of market capitalization in just one month since its launch.

SafeMoon (SAFEMOON)

Another newcomer meme coin that capitalized on the recent bull run is SafeMoon (SAFEMOON). It is a BEP-20 token launched on Binance Smart Chain (BSC) in March 2021. SAFEMOON rewards old holders by penalizing those who sell the token with an exit fee of 10%: half of this fee is distributed to current SAFEMOON holders, while the other half is burned. It attracted the attention of retail investors after its price skyrocketed in April. As of November 2021, SAFEMOON had an ROI of 9418.54% according to CoinMarketCap.