Recently, memecoins have garnered significant media attention, mainly sparked by the introduction of the President’s $Trump coin. The U.S. SEC has clarified that, in general, memecoins do not qualify as securities under the Howey test. However, this doesn’t prevent clients from inquiring about these investments.
In this edition of crypto insights for financial advisors, Janine Grainger from Easy Crypto in New Zealand offers an overview of what memecoins are, their functionality, and the risks they entail.
Additionally, Kieran Mitha, an emerging investor, responds to questions about exploring memecoins in our Ask an Expert section.
– Sarah Morton
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Memecoins: Surges, Dips, and Billion-Dollar Gambits
On January 17, the new meme coin $Trump was unveiled by the President-Elect. Its market capitalization skyrocketed to $14.5 billion in just two days, only to plummet by two-thirds shortly afterwards. Reports suggest that those behind the coin generated approximately $100 million in trading fees within less than two weeks (with even more accrued from liquidations). In contrast, countless regular investors faced substantial losses. In late 2024, when Trump launched the Department of Government Efficiency (DOGE), Dogecoin saw a 150% increase, significantly surpassing bitcoin’s rise.
Such incidents have placed meme coins squarely on the investment map. However, driven more by excitement than genuine utility, they present both opportunities and risks for investors, underscoring the necessity for financial advisors to grasp their distinct market dynamics, especially as high-net-worth clients may show interest despite their speculative essence.
Figure 1: Overview of $TRUMP, which quickly declined in value post-launch.
What are memecoins?
Memecoins are cryptocurrencies birthed from online culture, social media phenomena, or humor. Unlike bitcoin or ether, which have established themselves as valuable elements within diversified portfolios over time, memecoins thrive on excitement, communal sentiment, and endorsements from celebrities. While they sometimes originate as parodies or jokes, viral marketing and speculative trading can grant them considerable momentum — albeit often temporarily.
Why memecoins matter
Memecoins have captured mainstream attention due to their cultural significance and potential for substantial short-term profits. Influential figures like Elon Musk have sparked price surges with mere tweets, stirring speculative interest. Yet, while traders are enticed by the dream of quick wealth, memecoins come with high risks and unpredictable price fluctuations.
The valuation of memecoins can soar or nosedive within hours, leading to staggering profits or complete losses, as seen with ‘Fartcoin,’ a joke token that attained a $2.2 billion market capitalization based solely on viral appeal before collapsing as early investors withdrew. Platforms like Pump.fun further fuel this speculation, enabling users to create and trade memecoins without extensive technical know-how, resulting in an influx of ephemeral tokens that amplify the market’s inherent riskiness.
But are they legal?
Interestingly, the regulatory position of the Securities and Exchange Commission has allowed memecoins to flourish. While utility-oriented cryptocurrencies face regulatory scrutiny and obstacles, memecoins exist in a grey area as they do not guarantee financial returns, which facilitates their growth.
The dark side: rug pulls and scams
Unfortunately, memecoins are a hotbed for ‘pump-and-dump’ schemes, where influencers promote a token to inflate its value before cashing out, leaving everyday investors with worthless assets.
A recent example includes Hailey Welch, a viral internet figure who introduced $HAWK after gaining notoriety online. In just one day, the coin’s market cap approached half a billion dollars before crashing and triggering allegations of fraud. Similarly, Argentina’s President Javier Milei inadvertently sparked a controversy after endorsing $LIBRA, which similarly skyrocketed and then plummeted, resulting in accusations of market manipulation against him. These cases exemplify why memecoins are often viewed as cryptocurrencies lacking intrinsic value or long-term sustainability.
Figure 2: Overview of Hawk Tau ($HAWK), which also suffered a significant decline shortly after launch.
Memecoin investment considerations
Investors should approach memecoins with caution due to the lack of transparency in many cases. For those still interested, key risk elements include:
- Liquidity: Low trading volumes can result in extreme price volatility, complicating entry and exit strategies.
- Community sentiment: Social media heavily influences price changes. Keeping an eye on platforms like X (Twitter) and Telegram may provide valuable market insights.
- Tokenomics: While some memecoins create scarcity, others may have unlimited supply, leading to eventual devaluation.
- Pump-and-dump risk: Tokens that are aggressively promoted with unrealistic claims often indicate a short-lived hype cycle rather than a sustainable investment.
- Early entry vs. longevity: While early investments can yield high returns, they also carry a risk of sudden downturns. Some investors may prefer established memecoins with stable communities over chasing the newest fad.
Although memecoins have the potential for quick gains, their volatility and vulnerability to manipulation classify them as high-risk assets. Advisors should inform clients of their speculative nature and stress the importance of proactive risk management. Ultimately, investing in memecoins is akin to gambling rather than traditional investing.
–Janine Grainger, CEO, Easy Crypto
Ask an Expert
Q: I see individuals on social media getting rich from memecoins… Could I replicate their success?
A: While it’s true that some have reaped significant rewards from memecoins, it’s essential to recognize that social media often focuses on success stories, overlooking the many who have incurred losses. Memecoins are highly speculative, and their valuations can be driven more by promotional trends and market mood than by solid economic fundamentals.
If you are considering investing, do so with caution. Timing is critical — although many early buyers realize impressive profits, latecomers often face downturns when the excitement wanes or the asset collapses. Treat such investments as high-risk ventures rather than reliable paths to wealth. Only invest what you can afford to lose, and carry out thorough research before making any commitments.
Q. What significance does community hold in the success of a memecoin?
A: Community plays a crucial role in the success of any memecoin, acting as the driving force behind the project’s reception and engagement. Unlike traditional investments, where value is often linked to revenue or practical use, memecoins flourish on social media influence, trends, and grassroots enthusiasm. An active, engaged community can foster adoption and maintain a project’s visibility, but without ongoing interest, even well-received memecoins may fade quickly. Prior to investing, evaluate the activity levels of the community on platforms like X, Discord, and Reddit.
Q: How can I educate myself about memecoins before investing?
A: To effectively gain insights regarding memecoins, thorough research and active community engagement are essential. Start by following credible cryptocurrency news platforms, reading whitepapers, and participating in discussions on forums such as Twitter, Reddit, and Discord, where communities converse about projects in real-time. Pay attention to aspects like the project’s website, roadmap, developer involvement, and tokenomics.
Understanding the associated risks is crucial — memecoins are often rooted in speculation; hence, familiarizing yourself with market trends, trading methodologies, and potential scams will enable you to make informed decisions. Avoid relying solely on hype or social media personalities; conducting diligence is key.
– Kieran Mitha, crypto enthusiast & communications major
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