What Are Meme Coins? Definition and Examples

Originally considered a joke, meme coins have become popular for crypto investors, but they also carry risk.

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Meme coins (sometimes spelled "memecoins") are cryptocurrency tokens that are based on internet memes. Broadly defined, a meme is usually a popular phrase, image or idea that is shared on the internet. The first cryptocurrency in this category was Dogecoin (DOGE), which gained a large following after its release in 2013. Dogecoin is among the top 10 largest cryptocurrencies available today with a market cap of slightly over $8 billion.

Dogecoin’s success inspired many developers to create their cryptocurrencies tied to a popular meme. Since 2013, hundreds of different meme coins have been released to the public, but few of them achieved similar popularity. Shiba Inu is the only other meme coin with a market cap of over a billion dollars and is currently ranked as the 12th largest cryptocurrency by market cap, which is a little over $6 billion.

» Get started: How to buy Dogecoin

Meme coins at a glance

Price: Meme coins trade at prices well under a dollar, and sometimes even a fraction of a cent. Their low price point creates a low barrier of entry for investors.

Volatility: Meme coin prices are often driven by pop culture and have been known to explode or crash at a moment’s notice.

Supply limits: Many meme coins either don’t have caps on how many cryptocurrency tokens can be minted, or have high caps. This makes them highly susceptible to inflation risk and increases their volatile price movements.

Accessibility: The most popular meme coins can generally be purchased at cryptocurrency exchanges.

Dogecoin: The original meme coin

Software engineers Billy Markus and Jackson Palmer created Dogecoin, which was released in 2013. Dogecoin was originally created as a joke, aiming to poke fun at Bitcoin enthusiasts. The creators of Dogecoin used a popular meme of a dog (purposely misspelled “Doge”) as the logo for their cryptocurrency.

The meme coin quickly gained a large following through social media. Just two weeks after its release, China banned third-party payment companies from transacting with Bitcoin exchanges. The news sent Bitcoin and many other cryptocurrencies into a tailspin, but the price of Dogecoin jumped up 300%. Meme coin prices are largely driven by popular culture and social media, and Dogecoin’s price surge demonstrated that their price movements have a low correlation to price changes in the larger cryptocurrency market. The following month, Dogecoin’s trading volume was higher than all other cryptocurrencies combined, according to crypto platform Gemini.

A volatile coin with unlimited supply

Dogecoin runs on its own blockchain network and uses a proof-of-work consensus algorithm that allows cryptocurrency miners to validate transactions. Unlike Bitcoin, Dogecoin does not have a cap on how many cryptocurrency tokens can be minted, and there are currently millions of new Dogecoins being minted every day. Because of this, its prices are highly prone to inflation risk, and extremely volatile.

Since the price of each coin is typically well under a dollar, cryptocurrency investors tend to avoid using Dogecoin in their portfolio as a long-term investment. Instead, Dogecoin owners will regularly use it to reward online content creators through micro-tipping.

How did Dogecoin get so popular?

Meme coin prices are often driven by pop culture, and the Dogecoin community has made headlines on several occasions for its charity initiatives. On the Dogecoin website, it claims that its unofficial tagline is Do Only Good Everyday (an acronym for DOGE). In 2014, the online community raised $25,000 to send the Jamaican bobsled team to the Olympics. The same year, community members raised $30,000 and used it to provide access to clean drinking water in Kenya through a program called Doge4Water.

More recently in 2021, Dogecoin saw another price surge as celebrities, including Tesla CEO Elon Musk and rapper Snoop Dogg, began to encourage investors to buy Dogecoin. The meme coin's price jumped more than 4,000% in 2021. On May 7 of that year, the price of Dogecoin went as high as 74 cents before tumbling back down to its current price of about 6 cents.

» More alternatives to Bitcoin: What are altcoins?

Another successful dog-related token: Shiba Inu

Shiba Inu (SHIB), a crypto token inspired by Dogecoin, is the second largest meme coin by market cap. Shiba Inu was created by an anonymous developer named Ryoshi, and released in August 2020. Using the same breed of dog (the Shiba Inu) as its logo, Shiba Inu’s developers aimed to create a meme coin that would be an alternative to DOGE. Unlike DOGE, Shiba Inu was created on the Ethereum blockchain network.

Shiba Inu is unique in that it aims to be completely decentralized. Unlike many other cryptocurrencies, SHIB has no funding, no centralized team and no governing body; it’s completely run by community members. It runs on a proof-of-stake consensus mechanism, which does not support mining. Instead, transactions are validated through a process called staking.

Supply is limited — but the limit is one quadrillion

Unlike many meme coins, Shiba Inu does place a limit on how many cryptocurrency tokens can be minted — but that limit is high. Shiba Inu has a circulating supply of 497 trillion tokens, with a total supply of one quadrillion. The extremely high number of SHIB coins in circulation keeps its price point low, and high transaction volume makes its value extremely volatile.

Are meme coins worth an investment?

All cryptocurrencies are still considered to be alternative investments due to their newness and volatility. And of all the cryptocurrencies available, meme coins are typically the most volatile due to their supply and trading volume. Traditional financial wisdom would argue that alternative investments should account for the smallest percentage of your portfolio. In other words, don’t invest more than you can afford to lose.

The low price point for meme coins might seem attractive to potential investors, but proceed with caution. If you’re intent on purchasing a meme coin, it’s best to start small as their prices are highly unpredictable.

The author held no positions in the aforementioned investments at the time of publication. The editor owned DOGE at the time of publication.

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