Meme coins – A bubble waiting to burst?

WHILE most of us are rather familiar with cryptocurrencies like bitcoin, which is part of a larger group of what is known as payment cryptocurrencies, we might be unfamiliar with other types of payment-based cryptocurrencies which can be broken down into at least two other categories namely stablecoins and meme coins.

While bitcoin allows holders to trade and carry out transactions, it is also seen as a store of value cryptocurrency as it does seem to have retained its value over time, which is rather similar to fiat currencies.

For merchants or institutions that accept bitcoin, the usage of the cryptocurrency is seen as an electronic cash payment system that allows users to purchase goods or services, without the involvement of financial institutions or central banks.

The cryptocurrency market is rather huge with a total market capitalisation of US$3.36 trillion, and only behind Apple Inc, which has a market capitalisation of more than US$3.5 trillion.

Bitcoin is the largest form of cryptocurrency and accounts for almost 58% of the total cryptocurrency market value. In terms of trading value, more than US$120bil worth of cryptos are traded daily and have hit more than US$400bil just last month.

Five categories

According to one of 1,200 cryptocurrency exchanges around the world Kraken, there are five categories of cryptocurrencies, and they can be broken into either payment cryptocurrencies, infrastructure cryptocurrencies, financial cryptocurrencies, service cryptocurrencies as well as media and entertainment cryptocurrencies. Payment cryptocurrencies are further broken down into store-of-value types of cryptocurrencies, which include the likes of bitcoin and litecoin.

Another form of payment cryptocurrency is the stablecoin, which mirrors a fiat currency and typically the US dollar.

An example of stablecoin is tether, which is the world’s largest stablecoin.

Meme coins, which use Internet sensation themes and serve as digital payment tokens are also a form of payment cryptocurrencies.

Most meme coins were created as a joke or a viral meme, but has since grown by leaps and bounds and are recognised as a form of payment cryptocurrency.

Infrastructure-based cryptocurrencies are tokens that enhance the technology supporting other cryptocurrencies and these include the likes of solana and ethereum. Other than the sheer size of the cryptocurrency market in terms of market capitalisation, it is also rather baffling when one breaks down the numbers in terms of different types of cryptocurrencies.

According to CoinGecko, a website that provides fundamental analysis of the crypto market, there are more than 17,000 coins worldwide that have been launched.

As for exchanges that are actively tracked by CoinGekco, 216 of them are cryptocurrency exchanges, 912 are decentralised exchanges and 110 are crypto derivative exchanges.

Stablecoins

This is a huge market and was last observed to have some US$233bil in terms of market capitalisation, of which some 61% are in the form of tether or USDT. With a supply of 141.9 billion USDT, tether has an equivalent market capitalisation as its price is pegged to the US dollar and as the name suggests, its value is rather constant at US$1.

Unlike bitcoin, which has a limited supply of 21 million coins, USDT has an unlimited supply and tether can expand the supply when there is new demand to maintain the pegged value. It can also reduce supply if there are redemptions carried out by USDT holders for a fiat currency, which in this case is the US dollar.

Meme concept

Meme coins came to light when Dogecoin or DOGE was first introduced back in 2013.

According to the Bitget website, “meme coins are cryptocurrencies that derive their value solely from the memes with which they are associated, essentially bringing financial value to the concept of memes”.

Their value is based on the meme’s relevance and ability to capture mindshare, creating a new type of market where cultural resonance is quantifiable and financially valued.

In essence, meme coins are all about hype, believing in their value, and what they bring to the market. Meme coins recently a fresh lease of life when US President Donald Trump took office, and the meme coin TRUMP began trading.

Issued at less than US$1 per token, the price zoomed to a high of more than US$75 before plummeting to its current level of about US$15.70, giving the coin a market capitalisation of US$15.7bil on a fully diluted basis.

Not to be left behind, the First Lady too saw MELANIA being launched and the price raced to a high of US$13.73 before it crashed to its current level at US$1.44. Among crypto investors, meme coins seem to create wealth.

While the owners of meme coins or traders may have made insane profits from the market, there is no change in the total money supply. These meme coins do not create wealth but simply transfer the wealth from the buyers to the sellers. Just like bitcoins, meme coins too have no underlying asset that backs up their value and have no practical purpose either.

Market cap

Meme coins’ total market capitalisation is at almost US$80bil, of which almost half is related to DOGE. Most meme coins are priced below US$1 and what drives the valuation is the circulating supply. In the case of DOGE, there are some 148 billion tokens issued.

However, DOGE is not as big as some other meme coins, where token supply is mind-boggling to the tune of 163.7 quadrillion in supply, which is the total supply under baby doge coin.

But as the price is extremely low, the market capitalisation of the token is only US$305mil.

From bitcoin to baby doge coin, the world of cryptocurrency has certainly taken away liquidity from traditional asset classes and in today’s environment.

It is not only investments or speculation into the cryptocurrency space but also via derivatives like futures contracts, exchange-traded funds as well as listed companies whereby sole value is derived from bitcoin investments, which is what Strategy (formerly known as MicroStrategy) is all about.

The company uses new equity and fixed-income instruments to raise funds, which in turn is ploughed into new bitcoin investments.

There is no doubt that the cryptocurrency market is booming and with Trump seen as crypto-friendly, market participants believe the good times are here, especially if the United States creates a strategic bitcoin reserve. However, caution is needed as the market has gone toppish in terms of supply and quantity as well as growth among the meme coins. There is no stopping anyone from issuing a meme coin.

They are easily created and their sole purpose is speculation.

Issuers create them with the hope that the token will go viral and prices skyrocket, allowing them to get rich quickly.

There is also a risk as most meme coins are not only volatile but have a short lifespan. It is equivalent to what we see in some equity stocks where the “pump and dump” strategy is deployed. After one meme coin goes through this cycle, investors will move to another meme coin. In the end, it is the retail investors who will suffer as the market is not regulated nor transparent in terms of ownership and control.

The sheer supply of meme coins alone 0shows that there is no stopping the issuers from creating more tokens and where supply is abundant, the market price will adjust.

Meme coins are nothing but a bubble, akin to a get-rich-quick scheme and purely ride on market demand via its popularity.