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What are meme coins?

Meme coin is a cryptocurrency inspired by memes or funny stories on the Internet and social networks. The first meme coin created was Dogecoin (DOGE). Launched in 2013 as a parody, DOGE was inspired by the famous Doge meme of a Japanese Shiba Inu dog.

 

The meme coin is a cryptocurrency inspired by memes. These coins tend to be highly volatile compared to major cryptocurrencies like bitcoin (BTC) and ether (ETH). The reason is because the meme coin is a highly community token. Their prices are often influenced by social media and online community sentiment. This not only causes the value to be overstated but also causes FOMO and financial risk. Although some traders have become rich thanks to the meme coin, many have lost money due to market volatility.

Meme coins tend to be highly volatile. This coin is largely community driven and can become popular overnight due to online community endorsements and FOMO. However, their prices could also drop unexpectedly as traders turn their attention to the new meme coin.

 

Another characteristic of meme coins is that they often have a huge or infinite supply. For example, Shiba Inu (SHIB) has a total token supply of 1 quadrillion tokens, while DOGE has no maximum supply and over 100 billion tokens already in circulation. Since meme tokens usually do not have a coin burning mechanism, their huge supply is what causes their prices to be relatively low. With just 1 USD, you can buy millions of meme tokens.

Why is meme coin so popular?

Although it is difficult to determine the specific reason, some people believe that during the COVID-19 pandemic, the cryptocurrency market has grown because retail investors want to hedge against inflation. Meme coins also exploded in that context, growing in both market capitalization and diversity.

 

It all started after the GameStop (GME) and AMC Entertainment (AMC) “meme stock” saga in late 2020, where the Reddit community increased the price of these stocks 100-fold in just a few months. In January 2021, a Reddit group joked about increasing the price of DOGE to create a cryptocurrency equivalent to GME. This trend started with the influence of Tesla CEO Elon Musk's tweets, causing the price of DOGE to increase. Dogecoin peaked at $0.73 USD, with a gain of over 2,000% in five days.

However, in May 2021, Elon Musk joked about DOGE publicly on TV and many people believe that this was the cause of the subsequent price drop. Some traders then switched to other meme coins on the market, such as SHIB "Dogecoin killer". At the same time, retail investors are in a FOMO mood on meme coins in hopes of becoming millionaires overnight, sparking another meme coin price surge.

 

Another reason why retail investors find meme coins attractive is that they often cost the equivalent of just a few cents or even a fraction of a cent. Technically, the low price is no problem because these coins have a huge supply. However, holding millions of certain meme coins feels different than holding a small portion of ETH or BTC. Traders can get thousands or even millions of DOGE, SHIB or Akita Inu (AKITA) tokens for just a few bucks.

In addition to potential profits, the meteoric rise of meme coins is also fueled by community sentiment that loves the respective topic. As mentioned, memes are inspired by popular memes on the Internet, intended for entertainment purposes and are sometimes considered "inside jokes" within a community. In a way, purchasing meme coins is showing support for the community that loves the respective topic. Following the GME stock market saga, meme coin traders inspired by the Reddit group SatoshiStreetBets started a “David vs. Goliath” war to bet against mainstream cryptocurrencies. As a result, the cryptocurrency market in 2021 is flooded with community-driven meme coins.