Meme Coins: Why They Might Not Make You a Millionaire

Although meme coins have existed for over a decade, their prevalence has surged in recent months. Launches by social media influencers, celebrities, and politicians have pushed the total valuation of the meme coin market above $50 billion. Yet, if you believe investing in meme coins will make you a crypto millionaire, you should reconsider. Here are three key points to consider before diving into meme coin investments.

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Meme Coin Valuations Can Be Misleading

Currently, five meme coins boast market caps above $1 billion, with Dogecoin (CRYPTO: DOGE) leading the pack at a remarkable $30 billion valuation. This valuation suggests value, but a closer look reveals otherwise.

Meme coins lack backing from real-world or even virtual assets. Many originate as internet jokes, with some websites explicitly stating that investing in them is for entertainment purposes only. So, how do these coins obtain such high valuations? Most have extremely high coin supplies, often in the hundreds of billions or even trillions. For example, if a coin has a supply of 100 billion, a market price of $0.01 achieves a $1 billion market cap.

Dogecoin has a coin supply of 148 billion, while Bonk stands at 77 trillion, Pepe at 420 trillion, and Shiba Inu (CRYPTO: SHIB) at 589 trillion.

Short-term Gains Are Hard to Sustain

Meme coins are designed to be fleeting. The cycle begins when a funny meme emerges, often followed by the creation of a related coin. However, most meme coins experience significant drops in value after a few months as the novelty fades.

This transient nature complicates attempts to replicate short-term gains over the long-term. Typically, meme coin investors pursue quick profits and if they don’t see immediate returns, many move on to the next promising coin. Dogecoin is a notable exception, having existed for over a decade, but the predicted launch of the Official Trump meme coin in 2025 will determine if it shares the same longevity.

“Buy Low, Sell High” Is Challenging

Identifying the right meme coin for profitable investment proves challenging. Early investors, often insiders or influencers, benefit the most. By the time you realize it’s time to sell, you might find it’s too late, leading to forced sales at significant losses when a coin’s value plummets. It’s not uncommon to wake up and discover your investment is nearly worthless. While about 1% of investors might profit, the vast majority suffer losses.

A hidden truth of meme coin investing shows that once a coin lists on prominent cryptocurrency exchanges like Coinbase Global, the opportunity for new investors to profit diminishes. The coin has likely traded on smaller exchanges where early adopters seek to cash in on inflated prices paid by newcomers. This scenario illustrates the Greater Fool Theory in action.

Are There Success Stories of Meme Coin Millionaires?

During the previous crypto bull market, a few individuals became millionaires by investing in Dogecoin or Shiba Inu at opportune moments. Some took significant risks, investing their life savings, and found success. However, it’s important to note that these events occurred nearly five years ago. The landscape has evolved dramatically since, with countless new meme coins flooding the market and tools like Pump.fun allowing quick coin creation and trading.

If you hesitate to jump in, you might miss out. Recently, for example, the $4.5 billion Libra meme coin lost 97% of its value within hours as early investors profited while latecomers suffered. The allure of turning a small investment into substantial wealth is enticing, but remember that meme coins thrive on speculation and hype—they’re not genuine investments and likely should not be part of your long-term strategy.

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Dominic Basulto has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.