Memeconomy 101: Understanding the Economics of Meme coins

Memes have become an integral part of Internet culture but have since moved past just being a source of entertainment on social media. In fact, meme culture has become so powerful that it has even been able to affect the financial world.

The emergence of meme coins has acted as a “cultural reset” in the cryptocurrency industry as they essentially allow people to invest in a trend.

What are meme coins, what makes them so popular, and are they worth your time?

The Basics Of Memeconomy

According to data published on CoinMarketCap, the total market capitalization of meme coins surpasses $16 billion as of 13 July 2023.

The platform has listed hundreds of registered meme coins, with some of the biggest being dogecoin (DOGE) which has been popularly endorsed by Elon Musk and is currently ranked as the eighth biggest cryptocurrency overall, shiba inu (SHIB), pepe (PEPE), and bone shibaswap (BONE) among many others.

Tesla merch buyable with Dogecoin

— Elon Musk (@elonmusk) January 14, 2022

Overall, meme coins are cryptocurrencies that gain popularity primarily through social media or the use of internet memes. Many meme cryptocurrencies have also been created as a joke. DOGE and SHIB, for example, are using the popular Doge meme as their mascot and inspiration.

DOGE was created in 2013 and is poking fun at the complexities of bitcoin (BTC), the biggest cryptocurrency by market capitalization.

Meme Coins vs. Regular Crypto: Biggest Differences

The co-founder and CEO of CoinLedger, David Kemmerer, told Techopedia:

Essentially what this means is that meme cryptocurrencies are built around community preference, the CEO of VUCA Digital, Pan Lorattawut, added, highly focusing on community engagement and rising trends.

While, in hindsight, nothing really makes meme cryptocurrencies too different from any of the other digital assets available on the market, the co-founder and CEO of Howl Labs, Ivan Perez, noted that their rise in popularity has led investors to re-evaluate and challenge the foundational principles underpinning the overall economic system as they “offer a unique and intriguing way to interact” with the crypto industry.

Despite meme tokens not being far too different from regular or more established cryptocurrencies like BTC and ether (ETH), experts admit that their more playful nature could lead investors to deem them as ‘less credible’.

Dr. Justin Goldston, a professor of supply chain management at Georgetown University, told Techopedia:

Supply and Demand Of Meme Coins Depend On Community

Since meme coins are created mainly for social purposes and entertainment, their supply and demand are highly dependent on social trends and investor sentiment, CoinLedger’s Kemmerer noted.

For example, the price of DOGE or SHIB tends to surge when Elon Musk tweets about the cryptocurrency or even when he posts photos of his own Shiba Inu dog. More recently, the price of DOGE surged when Elon Musk changed the logo of Twitter to the logo of the cryptocurrency, helping the asset’s market capitalization surge from $10 billion to $13.7 billion.

As promised pic.twitter.com/Jc1TnAqxAV

— Elon Musk (@elonmusk) April 3, 2023

The cryptocurrency’s value then dropped once the social media platform stopped using it as a logo.

While the community does play a vital role in meme token development, social media marketing plays a crucial role in promoting any cryptocurrency on the market.

“Each time a new token comes up, it has its own community of followers that drive its momentum on social media and elsewhere. It’s social media marketing 101,” Elijah Jackson, the cryptocurrency YouTube creator and blockchain industry commentator of MyChargeBack told Techopedia.

Dr. Goldston added that because meme coins do not have the fundamental economic or business use cases that other cryptocurrencies have, their prices are heavily influenced by the hype generated on social media platforms like Twitter and Reddit.

Other factors that could also influence the supply and demand of meme cryptocurrencies include celebrity endorsement and fear of mission out.

Although, because community building plays such a big role in the supply and demand of meme tokens, the biggest risk associated with them could primarily stem from their speculative nature and volatile prices, Dr. Goldston noted.

In addition, since most meme tokens are based on pop culture trends, they are also highly susceptible to social trends, CoinLedger’s Kemmerer said.

Regulations and Future Outlook

The cryptocurrency industry has been highly monitored by regulating bodies worldwide, and the meme crypto world is no exception.

While regulating bodies are yet to target meme cryptocurrencies specifically, the U.S. Securities and Exchange Commission (SEC) has already filed a number of lawsuits against Coinbase, Binance, and even Ripple.

In Europe, the European Union had provisionally agreed on the Markets in Crypto-Assets regulation (MiCA) that will aim to closely monitor the cryptocurrency industry in all 27 European states.

As meme cryptocurrencies continue to surge in popularity, regulating bodies will soon start to develop an interest in them too, Kemmerer said.

On the other hand, most cryptocurrencies that fall into the traps of regulating bodies have a company or a number of people that stand behind the token, working on its development or the blockchain that it exists on. However, this is something that meme tokens often lack, thus making it harder for regulating bodies to target them, MyChargeBack’s Jackson noted.

Although, this is not to say that meme coins are not liable to face regulatory issues in the future.

“Memecoins may appear to be a frivolous joke at first glance, but they serve as a powerful social commentary that goes much deeper. They challenge traditional financial systems and the way we perceive value in a rapidly changing world. Memecoins may even highlight the fickleness of human belief in assigning value to intangible assets and question whether our collective faith in traditional financial systems is well-founded,” Howl Labs’ Perez added.

The Bottom Line

With big names such as Elon Musk continuing to endorse meme coins, it is without a doubt that memeconomy will continue to surge. A pop culture phenomenon, memeconomy is keeping audiences engaged and has a knack for attracting a wide array of new users, who initially may have not even been interested in investing in crypto – or stocks, think GameStop (GME).

Even so, users should remember to exercise caution when investing in cryptocurrencies and never trade money they cannot afford to lose.