Dogecoin, a popular meme-based cryptocurrency favoured by billionaire Elon Musk, is now trading at a market cap of $38 billion. The coin, having started as a joke on the cryptocurrency trend in 2013, is now rivalling some of the largest digital tokens in the world.
Shiba Inu, another cryptocurrency inspired by the Japanese dog meme, was born in August 2020 as a repetitive joke about crypto rallies. Today, it has a market cap of $40 billion. This coin, too, has gained prominence thanks to Musk.
According to the crypto exchange WazirX, Shiba Inu clocked an all-time high 24-hour trading volume of over $560 million on Oct. 27. The coin soared on speculation that it might be listed on the Robinhood exchange.
The same day, Shiba Inu momentarily surpassed the eight-year-old Dogecoin in value for the first time.
But is the frenzy behind these meme-based cryptocurrencies backed by any fundamentals?
“The definitive answer is no. Why do we like to watch and share memes? Because they are funny and relatable. Not because we think they add any value to our lives like books,” said Nirmal Ranga, chief revenue officer at crypto exchange ZebPay.
“Similarly, these coins are meant to be more community-based rather than utility backed by proper tokenomics. They lack intrinsic value and are just an experiment on community-driven projects,” he said.
Ranga explained that Musk’s tweets were the most prominent catalyst, and since the coins are community-driven, there was a lot of pressure. Many users consider the absence of meme coins to be a service deficiency.
“It’s also a way of expression for many. The rise of meme coins show how humour is being leveraged to endorse the larger crypto ecosystem,” Ranga said. “I wouldn’t mind amassing a few thousand worthless tokens if it can act as a show of support.”
Playing with meme coins is comparable to fantasy gaming. The player knows the stakes are high because of unusual uncertainty or volatility. It’s as good as gambling. Experts are concerned that the high volatility will burn a lot of investors who are new to cryptocurrencies, an industry insider told BloombergQuint on the condition of anonymity.
“Many new investors are dreaming that a single Shiba Inu token could be worth as much as $1 in the future. And that’s practically impossible because there are hundreds of trillions of tokens in supply,” said Sidharth Sogani, founder and chief executive officer of Crebaco Global Inc., a crypto credit rating firm.
A whale is a crypto term that refers to users or entities who hold large amounts of cryptocurrency. According to crypto research firm Into the Block, 70.52% of Shiba Inu’s circulation is controlled by nine whale accounts, of which the biggest one is Vitalik Buterin, the co-founder of Ethereum.
“The modus operandi is similar to the GameStop saga. Influential users create waves on social media sites and coordinate their responses. New folks consider it a research tip or nudge and enter the game,” Sogani said. “Little do they know, the market is entirely based on speculation and manipulation since there are no fundamentals to consider.”
Crebaco conducted a global survey of 1,000 new crypto investors and found that 91% had purchased meme coins. These include Dogecoin, Shiba Inu, and SafeMoon primarily.
“It’s pretty ironic that many think meme coins will make them rich. When value is created out of thin air, it leads to inflation. And, Bitcoin kicked off the crypto movement to fight precisely that,” Sogani said.
Meme coins are at the intersection of finance and culture. And, the low-unit price of these coins often misguides buyers into believing the coin is still at a nascent stage and yet to hit its full potential.
“Bitcoin and Ethereum have a range of applications. The former has proven its consistency, while the latter offers new-age solutions like non-fungible tokens and decentralized finance. Shiba Inu has started incorporating new features, but it’s still too early to comment,” said Sharat Chandra, a blockchain expert.
“Dogecoin, on the other hand, has no purpose. The community-driven approach often instils FOMO, and there’s little we can do right now without regulations,” he said.
Chandra cited the example of Squid, a Squid Game-inspired token that has surged more than 86,000% in a week, gaining a market cap of $9 billion. It doesn’t matter whether the game is exciting or even directly associated with the series; the brand is enough in the world of internet trends, he said.
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