Commentary by: Georgii Verbitskii, founder of TYMIO
Over the past year, memecoins have taken center stage in the cryptocurrency conversation, resulting in a series of noteworthy incidents where most traders incurred losses while certain insiders walked away with profits. It is estimated that the Libra token alone caused $4.4 billion in public losses. Unlike previous cycles in crypto, where general market growth benefitted holders, today’s memecoin speculation has established conditions that make it difficult for the average trader to succeed. How did memecoins steer the market towards a deadlock, and will this trend ever come to an end?
Speculation vs. Investment
Investing and speculation represent two fundamentally different activities governed by distinct principles. True investment is not about quick profits; it involves acquiring the right assets to safeguard capital over the long term. Investors typically don’t wait for the perfect “entry point” but rather purchase assets intended for years of retention. Such investments appreciate relative to fiat currencies based on underlying factors. For instance, stocks, gold, and Bitcoin (BTC) tend to rise against the US dollar, which is subject to unlimited printing and inflation.
Some assets might have additional growth factors—like increasing real estate demand, rising corporate profits, or even government adoption of Bitcoin—but these are secondary. The primary objective of any investment is to avoid a total loss of value in fiat terms. Prudent investors observe long-term macroeconomic trends to maintain their purchasing power.
In contrast, speculation operates as a zero-sum game, where the informed few profit at the expense of the uninformed majority. Typically, these individuals seek rapid returns, which is exactly the case with memecoins. Unlike more traditional investments, memecoins lack intrinsic value, dividends, or interest revenue. For example, in the context of Bitcoin, the “greater fools” who buy after someone else can include companies that embrace Bitcoin or nations that establish reserves. However, with a token like LIBRA, the greater fool is simply the one who purchased it following a notable announcement. Beyond that, there are no new buyers.
Unregulated Gambling
Memecoins resemble online gambling platforms, providing entertainment and the promise of quick gains while ultimately benefiting only those who create and promote them. In contrast to regulated gambling, where risks are clearly understood, the hype surrounding memecoins often stems from influential personalities—from well-known crypto figures to political leaders—distorting social media narratives. The harsh reality mirrors that of a casino; the odds are overwhelmingly stacked in favor of insiders and early followers while the majority endure losses.
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The excitement surrounding memecoins undeniably thrives on speculation and emotional triggers—this is a game that manipulates feelings and drains players’ resources. Platforms like Pump.fun, which enable the launch of memecoins, have amassed significant profits, demonstrating that providing tools during a gold rush can be incredibly lucrative. Why is it that opening a casino necessitates a license and compliance with zoning laws, yet anyone can create their own memecoin?
Currently, that situation appears poised for change.
Is This Ever Going to End?
The absence of regulatory frameworks has spurred the rapid rise of memecoins. How did we arrive at this point? Reflecting on the SEC’s recent actions, including lawsuits against major decentralized finance (DeFi) entities and reputable crypto firms that tried to act responsibly, it becomes clear. Another significant move was Operation Chokepoint 2.0, led by the previous US administration against the crypto sector at large. These actions not only hampered well-intentioned firms but also inadvertently enabled others to exploit the lack of clarity around regulations.
As a result, cryptocurrency exchanges lately have increasingly listed primarily memecoins almost immediately post-launch. The regulatory chaos has turned the crypto market into a massive global casino. While many previously hoped to capitalize on this gamble, an atmosphere of widespread disappointment looms as losses accumulate.
However, there is a glimmer of hope. The current US administration is decidedly more “crypto-friendly,” indicating that we may witness significant strides in regulation this year. This is particularly important for the DeFi sector, which has achieved product-market fit and is rapidly expanding, overtaking traditional financial markets (such as banks and brokers).
It is essential to revise outdated financial regulations swiftly. Existing rules were designed for a system that relied on trust in centralized intermediaries, while the new framework needs to embrace smart contracts—executable code on the blockchain.
More robust regulatory frameworks could impose stricter requirements on token launches, including necessary disclosures of the creators’ identities and limitations on listings by centralized exchanges.
Yet participants in the market may learn through painful experiences even in the absence of direct regulation, growing more cautious in their memecoin ventures. After enduring a series of challenging and disheartening memecoin outcomes, the Web3 community might finally grasp that such initiatives seldom reward risk-takers. For those who still opt to take the plunge, they should treat it like a trip to the casino: only wagering what they can afford to lose and finding enjoyment in the experience.
For individuals who find this approach unappealing or who are genuinely dedicated to increasing their wealth for future generations, a warm welcome awaits you in the more stable sphere of conventional Bitcoin investments. It seems the market is only beginning to acknowledge this reality.
Commentary by: Georgii Verbitskii, founder of TYMIO.
This article is intended for informational purposes only and should not be construed as legal or investment advice. The opinions expressed in this piece belong solely to the author and do not necessarily reflect the views or beliefs of any specific entity.