Memecoins: What are they and could they dominate this crypto cycle?

What are memecoins?

Memecoins are a unique category of cryptocurrency that function technologically just like other cryptocurrencies such as Bitcoin (BTC) or Ethereum (ETH), but as their name suggests, are based on humorous or interesting ideas captured in various forms of media such as images, videos or GIFs.

They were created by software developers as a form of satire or humorous tribute to internet culture, often inspired by viral internet memes and jokes.

The first viral memecoin was Dogecoin (DOGE), which launched in 2013. Using the now-iconic Shiba Inu breed of dog as its mascot, it was originally created as a joke, aiming to make fun of Bitcoin and the many other cryptocurrencies. The memecoin’s creators confess that they intentionally misspelt the word "dog" on purpose in order to make it seem "as silly as possible".

Gaining rapid popularity because of its dedicated community, Dogecoin became the hallmark of subsequent memecoins, making history in 2014 by donating nearly $30 000 to the Jamaican bobsled team for the 2014 Sochi Winter Olympics, garnering significant media attention and further funding. 

Dogecoin attracted supporters like Elon Musk, who frequently endorsed it through social media, referring to himself as the "Dogefather". His backing helped propel Dogecoin to the eighth largest cryptocurrency at the time of writing with a value of $21 billion – turning it into a social phenomenon and inspiring over 200 other memecoins.

In August 2020, Shiba Inu (SHIB) was released. Created by an anonymous entity known as “Ryoshi” and dubbed the "Dogecoin killer", Shiba Inu has the same Shiba Inu dog from Dogecoin as its logo. One of its notable features is its large token supply, with a quadrillion tokens initially minted. This high token supply means that individual tokens are valued at a fraction of a cent, attracting investors looking for high-risk, high-reward opportunities.

Shiba Inu operates on the Ethereum blockchain as an ERC-20 token, which means it can be stored in any Ethereum-compatible wallet, with a market valuation skyrocketing from $1 billion in October 2020 to $13,4 billion currently.

In May 2023, a memecoin built upon the legacy of Pepe the Frog (a popular internet character which gained popularity in the early 2000s on forums such as 4chan), was launched. The project’s market valuation has grown to a remarkable $2 billion, outperforming both Dogecoin and Shiba Inu over the last 12 months. 

Seeking high reward for little risk

While often lacking in any real underlying value, these coins have made crypto traders both love and hate them due to their highly volatile nature. It’s not uncommon for a memecoin to trade 10% to 20% up or down on any given day, driven primarily by speculation and community engagement. This makes memecoins highly risky investments. But with memecoins having already been around for a decade and growing in popularity in that time, they’re unlikely to disappear overnight.

Some started out as jokes and have subsequently gained huge followings – to the point of actual payments use cases being developed – with speculation giving them market values larger than most Johannesburg Stock Exchange listed companies.

A likely underlying driver behind the popularity of memecoins is the financial exclusion experienced by many young people, who increasingly view traditional paths such as a 9-to-5 job as inadequate for achieving home ownership and financial prosperity. Compounded by rising living costs, high youth unemployment, and excessive government money printing, younger generations are desperately seeking alternatives, and this has paved the way for the rise of the memecoin.

The idea of spending R5 on a lottery ticket to stand a chance of winning millions – often over R100 million – is extremely enticing, as it offers the dream of a very high reward for a very low risk.

Memecoins have carved out a niche in the market as part of a cultural movement, offering a lottery-style return mechanism. Investors can potentially achieve significant returns over a short period, with better odds than traditional lotteries (albeit with somewhat smaller payouts) even with relatively modest investments.

The high-risk, high-reward nature of memecoins has drawn speculators who invest modest sums (from as little as R150) on short-term price movements, aiming for triple-digit returns. The thinking is that even if their memecoin drops by 20%, 50%, or even 90%, it's still worth the gamble, as there's always a chance it could rebound.

Memecoin performance

Interestingly enough, memecoins have outperformed the likes of Bitcoin (BTC) and Ethereum (ETH) since the start of the 2023-'24 crypto market rally. 

As seen in the performance graph, memecoins such as Dogecoin (DOGE), Shiba Inu (SHIB) and Pepe (PEPE) have outperformed Bitcoin (BTC) and Ethereum (ETH) over the last 3- and 6-month timeframes, while PEPE has been the standout performer, outperforming BTC and ETH by more than 1 650% on a 12-month basis. 

In previous crypto bull markets, memecoins would usually only start to rally near the top or end of the market cycle as euphoria crept in, but never at the beginning. This leads to the possibility that memecoins could be set to continue to outperform the bigger cryptocurrencies.

If there is one thing history has shown us it's that nothing is more powerful than a movement – could the memecoin be the movement of this crypto market cycle? 

We will need to wait and see.

Where can you buy memecoins?

Memecoins are high-risk and highly speculative investments, but with the growing demand for these quirky investments, Cape Town-based Altify has become the first licensed South African crypto investment app to offer Dogecoin (DOGE), Shiba Inu (SHIB) and Pepe (PEPE) to its users.

Not only does Altify provide access to the widest variation of memecoins, but it has garnered a reputation for providing an easy-to-use platform, with no sign-up fees, and attracting users to get started with as little as R150.

Article Disclaimer:

This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. Altify provides a reception and transmission brokerage service for crypto asset orders without giving any investment advice or personalised recommendations.

While Altify believes in crypto accessibility for all, they also know that it might not be appropriate for everyone. Before investing, please take into consideration your level of experience, investment objectives and seek independent financial advice if necessary. You are encouraged to conduct thorough research into cryptocurrencies before making any investment. 

As an investor, you are responsible for making decisions regarding your investments. Please consider your personal circumstances when buying or selling crypto as the price can be very volatile. Remember, investing in cryptocurrencies is considered a high-risk investment as the value of cryptocurrencies are subject to extreme price fluctuations and may both appreciate and depreciate over time. Investing in crypto assets may result in the loss of capital. 

Also remember that past performance does not guarantee future results and Altify can’t guarantee returns since asset prices move based on supply and demand, so never trade with funds you can’t afford to lose. You should seek professional advice if you're uncertain about the suitability or appropriateness of any investment for your specific circumstances or needs.

Further information can be found in the General Risk Disclosures and Crypto Risk Disclosures on Altify's website. Investments should only be made by investors who understand these risks.

For more information, please visit www.altify.app. 

RVX SA Capital (Pty) Limited (“Altify Capital”) is an authorised financial services provider (FSP) in the Republic of South Africa with registration number 52727.