What’s the Secret to Memecoin Popularity?

The growth of memecoins has been impressive. On one hand, they represent key principles of the crypto world: fairness, transparency, and decentralization. On the other hand, they focus heavily on financial gains while often overlooking technological advancement.

Since 2022, memecoins’ share of the total crypto market capitalization has nearly tripled, rising from 4% to 11%. However, this remains below their 2021 peak of 12%, when memecoins like DOGE and SHIB reached market caps of $80 billion and $39 billion, respectively (compared to $29 billion and $11 billion today).

Memecoins have gradually regained value since 2022. Source: binance.com

The rise of memecoins is a logical step in blockchain’s evolution and integration into everyday life. Just as the internet and other new technologies gained traction through games and entertainment, blockchain—with memecoins—may attract a larger base of followers.

Macroeconomic and Socioeconomic Background

Remember 2020? It was a time when the COVID-19 pandemic forced businesses online, people spent weeks in their homes, and masks became a public necessity.

During this period, central banks worldwide expanded the fiat money supply dramatically to stabilize economies: between 2020 and 2022, the global money supply surged by over 25%, from $81 trillion to $102 trillion.

Significant increase in U.S. dollar supply during the global pandemic. Source: binance.com

However, this rise in money supply led to inflation—a decline in purchasing power that resulted in a sustained rise in prices for goods and services. The mechanism behind this is simple: with more money available for the same amount of goods and services, the value of money decreases relative to the value of produced goods.

During the COVID-19 pandemic, U.S. inflation reached unusually high levels, peaking at 7% in 2021 and 6.5% in 2022.

Inflation surged sharply post-COVID crisis. Source: tradingeconomics.com

For the average person, this environment ingrains a sense of ever-increasing prices for goods and services, while access to them remains limited by wages that frequently fail to keep pace.

Looking at the bigger picture, the decline in fiat currency value shapes people’s asset choices. Investors tend to seek assets that at least preserve value against inflation. Real estate is a prime example.

However, even though real estate prices are on a long-term upward trend, it has become increasingly unaffordable: the number of years an average American must work to buy a home has nearly doubled since 1963.

In the end, society is left with a rather bleak macroeconomic outlook: in addition to the ever-distant prospect of homeownership, people are also dealing with relentless inflation.

This dynamic fosters a growing sense of financial nihilism—a lack of trust in traditional financial systems. In response, investors are increasingly drawn to high-risk assets like memecoins.

Gamestop and Memecoins: What’s the Connection?

In 2021, shares of gaming company Gamestop saw one of the most famous short squeezes in history, as Reddit users banded together to buy up stocks that institutional investors were shorting. This movement led to significant losses for major investors, including well-known hedge funds like Citadel LLC, Melvin Capital, and Susquehanna International Group.

The Gamestop case illustrated how a community united by a shared purpose could influence stock prices on the public market. It also showcased a financial asset’s potential to create a community and even a cultural movement around it.

It’s not surprising, then, that people see similarities between Gamestop and the recent boom in memecoins. These assets resonate with investors due to their symbolic value rather than traditional valuation metrics like cash flow or market capitalization.

In the world of memecoins, users enjoy even more freedom compared to the traditional stock market. In crypto, they bypass barriers like finding a broker, navigating lengthy registration and verification processes, income checks, taxes, and so on. 

People appreciate the simplicity: “Create a wallet, buy a memecoin, profit, and have fun.” No business suit or pretentious expertise is required.

Transparency and Fairness of Memecoins

Memecoins are assets deeply rooted in Internet culture, aligned with pop culture, and entirely independent of the traditional financial system. In many ways, they are reminiscent of ICO tokens initially offered to retail investors as a counter to institutional fund monopolies.

Related: What Are Investment DAOs and How Do They Work?

At the time, numerous teams and projects claimed they were developing the next revolutionary blockchain product. In many cases, these projects had little more than a roadmap when launching their ICOs. Investors were essentially buying into an idea that aimed to unite a community.

Over time, ICOs faced scrutiny from regulators and came to be viewed as illegal securities offerings. This pushed projects to seek funding through private venture capital rounds.

While this approach did increase funding, it also introduced challenges related to “Low Float, High FDV.” Funds began to control a significant share of a project’s tokens, often using retail investors’ assets as liquidity upon each token unlock.

Memecoins, however, circumvent these issues: developers are typically as transparent as possible. They often make the entire token supply available for purchase from the start, allowing all investors to participate on equal terms (aside from the occasional flash bot activity).

Accessibility and Appeal of Memecoins

Memecoins present a more relatable narrative for everyday investors. For the average person, the humor behind a popular meme is far easier to understand than the complex technicalities of blockchain solutions in DeFi products.

In other words, memecoins can capture user interest much faster than fundamental altcoins. This allows the meme concept to spread virally among potential investors, building a community in just days.

The result is an exceptionally dynamic market environment: capital flows into new memecoins faster than ever. For example, the recently launched meme coin WIF (featuring a cute dog in a knitted hat) reached a $1 billion market cap in only 104 days, while SHIB took 279 days to achieve the same.

Low Survival Rate

Investing in memecoins may seem like a surefire way to earn big profits. However, the reality is quite different.

This is due to survivorship bias—a skewed perception where only the “successful” cases are highlighted, while the many failures go unnoticed.

While everyone talks about the massive growth of coins like DOGE or WIF, few mention the thousands of other obscure projects that have become worthless. In fact, 97% of memecoins launched in 2023 and 2024 currently have almost no trading volume.

For instance, DOGE ranks 3rd in trading volume among futures pairs on Binance, NEIRO ranks 8th, and WIF ranks 10th. Meanwhile, many memecoins on the DEX Raydium have a trading volume of less than $1,000.

Top 10 Assets by Futures Trading Volume on Binance. Source: dropstab.com

Memecoins quickly rise and attract speculators with promises of high returns. However, their prices are driven by market sentiment rather than real value, making them a high-risk investment where losses can be substantial.

Memecoins as Manipulative Assets

The accessibility of memecoins is both their strength and their downfall: while they are theoretically designed for fair distribution among retail investors, in practice, a large portion of the supply is often controlled by developers and flash-bot operators.

It’s also crucial to note that the meme coin market remains vulnerable to manipulation. Unscrupulous developers, celebrities, and influencers frequently use memecoins to execute Pump & Dump schemes.

Typically, these schemes unfold in three stages:

1. Creating the memecoin and distributing tokens across multiple wallets to build an illusion of decentralization.
2. Generating buzz on social media and partnering with KOLs to attract attention, especially from retail investors.
3. Using everyday traders as exit liquidity, selling them tokens that were previously allocated to “strategic” wallets with no actual value.

Eventually, the hype around the meme coin fades, and the token supply is scattered among regular investors. With the scheme’s orchestrators having exited, interest and demand vanish. Token holders are then left trading among themselves, and liquidity dries up.

Interest in Memecoins Leads to Stagnation in Technological Innovation

Memecoins not only carry high financial risks but also impact crypto culture as a whole, rarely advancing technology and, in fact, often contributing to its stagnation.

Related: Memecoins Dangerous and Bad?

The hype around memecoins is reminiscent of the “DeFi Summer” of 2020, when capital poured into Uniswap V2 forks across various blockchains. These tokens were used for yield farming and reselling but offered little in terms of differentiation or innovation.

A similar pattern is unfolding now: after the success of pump.fun—a platform for launching memecoins on Solana—similar platforms have appeared on other blockchains (SunPump for Tron, GraFun for BNB Chain, and so on). These rarely introduce revolutionary memecoins but often lead to stories of rapid price increases.

While memecoins could theoretically introduce fresh ideas, in practice, the market becomes flooded with nearly identical projects. For instance, it’s difficult to distinguish any unique value between WIF and PEPE, as both are based on popular culture memes.

As a result, developers, seeing intense interest in these assets, shift their focus from creating innovative ideas and complex technical infrastructure to simply churning out more memes.

The Future of Memecoins

The future of memecoins remains uncertain. On one hand, they continue to attract attention due to their lighthearted appeal and ability to generate quick excitement in the crypto market. On the other, their reliance on hype and lack of intrinsic value leave them vulnerable to sharp declines.

If memecoins can find practical applications or strengthen their user base, they may secure a lasting place in the crypto ecosystem. Otherwise, their popularity could fade just as quickly as it rose, ultimately making way for more sustainable and functional projects.