(NewsNation) — Some on social media are encouraging investors to ditch the stock market in favor of digital cryptocurrencies known as meme coins.
Their names sound more like something kids made up on the playground than actual investments.
Recently, a crypto token called “Fartcoin” hit a $1.5 billion market cap, making it more valuable than well-known brands like Office Depot and Ethan Allen. Even MooDeng, the viral pygmy hippo, has a coin.
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President Donald Trump even launched a cryptocurrency called $Trump or TrumpCoin, which fizzled after a hot start, dropping to around $17 and resulting in cumulative losses of $2 billion for over 810,000 crypto wallets.
Overall, 17% of U.S. adults say they have ever invested in, traded or used a cryptocurrency, according to Pew Research.
Claim: You can make millions trading meme coins
Crypto influencers talk like anyone can strike it rich with the right coin, showing off crypto wallets purportedly worth millions. Many of the claims sound too good to be true:
This is how I turned $100 into $15k with a memecoin (TikTok)
$70 to $14k in a week off a memecoin? (TikTok)
$MOODENG – Could it be the next billion-dollar meme? (TikTok)
How meme coins work:
Meme coins are cryptocurrencies inspired by internet trends or jokes.
Unlike stocks, which represent an ownership share in a company, most meme coins are purely for trading. They have no intrinsic value. They’re worth what someone else is willing to pay.
Dogecoin, the first memecoin, was meant as satire to mock Bitcoin but its viral popularity has led to real gains for many. Today, Dogecoin has a $56 billion market capitalization, making it more valuable than companies like Ford, Kroger and Delta Airlines.
This mobile phone app screenshot shows the logo for Dogecoin, in New York, Tuesday, April 20, 2021. Dogecoin, the digital currency advertised as the one “favored by Shiba Inus worldwide,” is having its day. Fans of the cryptocurrency are touting April 20, long an unofficial holiday for marijuana devotees, as “Doge Day” and imploring each other to get its value up to $1. (AP Photo/Richard Drew)
Trading is relatively straightforward: Buy a coin at a certain price and hope that it rises in value so you can sell it for more later on.
But in a world of lightning-fast internet hype cycles trading memecoins is more like gambling than investing. They’re notoriously volatile and prone to scams.
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As of March 2024, there were over 2,000 memecoin projects overall, and most (nearly 90%), are almost completely worthless, with a market cap between $0 and $1,000, according to BDC, an Estonia-based blockchain consultancy.
What they’re not telling you about meme coins:
Most crypto gains disappear fast
Social media influencers have helped drive memecoin trends, sending values higher but studies suggest those gains are fleeting.
Researchers at the University of Indiana analyzed thousands of tweets by the most prominent crypto-influencers and found that most returns disappear shortly after a cryptocurrency is mentioned.
“Starting two days after the fact, pretty much all those investment gains subside and become negative,” said Mark Piorkowski, an assistant professor of accounting who co-authored the paper.
Take the viral MooDeng coin for example. If you invested $1,000 at the coin’s $0.68 peak, your stake would have been worth 50% less ten days later.
Two-month-old baby hippo Moo Deng plays with a zookeeper in the Khao Kheow Open Zoo in Chonburi province, Thailand, Thursday, Sept. 19, 2024. (AP Photo/Sakchai Lalit)
Dogecoin hit its all-time high of $0.74 in May 2021. A year later its value had dropped more than 80% to $0.13.
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Compared to Bitcoin, the most popular cryptocurrency, memecoins are 50 times more volatile, according to BDC.
Many meme coins are scams
Online tools have made it easy for anyone to launch a memecoin but many are outright scams.
One of the most common scams is called a “rug pull,” when a developer abandons a project after raising assets, leaving participants with worthless tokens.
Pump and dump schemes are also widespread, affecting 40% of memecoin projects, BDC estimates. The playbook is nothing new: Fraudsters hype up the coins on social media, driving the price “to the moon” before dumping their assets, sending the value plummeting.
Internet star Hailey Welch, known as the “Hawk Tuah Girl,” found herself in hot water after launching a cryptocurrency that shot up in value before tanking. Some suggested the coin was used as a pump and dump scheme though Welch has denied the allegations.
Americans reported losing $5.6 billion to cryptocurrency scams in 2023, a 45% jump from the year before, according to the FBI.
“The decentralized nature of cryptocurrency, the speed of irreversible transactions, and the ability to transfer value around the world make cryptocurrency an attractive vehicle for criminals while creating challenges to recover stolen funds,” Michael D. Nordwall, assistant director of the FBI’s criminal investigative division, wrote in the report.
You’re competing with bots over meme coins
The difference between winning and losing with memecoins can come down to a matter of seconds, and oftentimes you’re competing against machines.
Automated bots are programmed to make trades when certain criteria are met, which means even the most plugged-in social media user could be too late to capitalize on their investment.
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So-called sniper bots are some of the most common, BDC said. They trade much faster than humans, are completely emotionless and can run 24/7.
“Even if you could get in at the right time, the ability to get out for a fair cost is also challenging,” Piorkowski said.
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That’s because thinly traded memecoins can face liquidity challenges, which means even a small trade could swing prices and leave you stuck with losses.
Big Picture: Americans remain skeptical over crypto
Meme coins — and the social media cycles that drive their popularity — operate in a digital wild west as regulators debate cryptocurrency’s future.
Celebrities like Kim Kardashian, Lindsey Lohan and Steven Seagal have all paid out fines to the Securities and Exchange Commission (SEC) for promoting various crypto schemes in recent years.
The Bitcoin logo is seen on a Coinstar cryptocurrency ATM at a grocery store in Washington, DC, on Jan. 19, 2023. (STEFANI REYNOLDS/AFP via Getty Images)
The high-profile slaps on the wrist could be one of the reasons Americans remain broadly skeptical of cryptocurrency.
Roughly six in ten Americans (63%) say they have little to no confidence that current ways to invest in, trade or use cryptocurrencies are reliable and safe, according to a recent Pew survey. Just 5% of respondents were extremely or very confident in cryptocurrencies.
Gallup polling shows similar hesitance. Only 3% of respondents in a 2024 survey thought cryptocurrency was the best long-term investment, down from 8% who thought so in 2022.
