What’s the Secret to Memecoin Popularity?

The rise of memecoins is a logical step in blockchain’s evolution and integration into everyday life. Just as the internet and other new technologies gained traction through games and entertainment, blockchain—with memecoins—may attract a larger base of followers.

Macroeconomic and Socioeconomic Background

Remember 2020? It was a time when the COVID-19 pandemic forced businesses online, people spent weeks in their homes, and masks became a public necessity.

During this period, central banks worldwide expanded the fiat money supply dramatically to stabilize economies: between 2020 and 2022, the global money supply surged by over 25%, from $81 trillion to $102 trillion.

However, this rise in money supply led to inflation—a decline in purchasing power that resulted in a sustained rise in prices for goods and services. The mechanism behind this is simple: with more money available for the same amount of goods and services, the value of money decreases relative to the value of produced goods.

During the COVID-19 pandemic, U.S. inflation reached unusually high levels, peaking at 7% in 2021 and 6.5% in 2022.

For the average person, this environment ingrains a sense of ever-increasing prices for goods and services, while access to them remains limited by wages that frequently fail to keep pace.

Looking at the bigger picture, the decline in fiat currency value shapes people’s asset choices. Investors tend to seek assets that at least preserve value against inflation. Real estate is a prime example.

However, even though real estate prices are on a long-term upward trend, it has become increasingly unaffordable: the number of years an average American must work to buy a home has nearly doubled since 1963.

In the end, society is left with a rather bleak macroeconomic outlook: in addition to the ever-distant prospect of homeownership, people are also dealing with relentless inflation.

This dynamic fosters a growing sense of financial nihilism—a lack of trust in traditional financial systems. In response, investors are increasingly drawn to high-risk assets like memecoins.

In 2021, shares of gaming company Gamestop saw one of the most famous short squeezes in history, as Reddit users banded together to buy up stocks that institutional investors were shorting. This movement led to significant losses for major investors, including well-known hedge funds like Citadel LLC, Melvin Capital, and Susquehanna International Group.

The Gamestop case illustrated how a community united by a shared purpose could influence stock prices on the public market. It also showcased a financial asset’s potential to create a community and even a cultural movement around it.

It’s not surprising, then, that people see similarities between Gamestop and the recent boom in memecoins. These assets resonate with investors due to their symbolic value rather than traditional valuation metrics like cash flow or market capitalization.

In the world of memecoins, users enjoy even more freedom compared to the traditional stock market. In crypto, they bypass barriers like finding a broker, navigating lengthy registration and verification processes, income checks, taxes, and so on. 

People appreciate the simplicity: “Create a wallet, buy a memecoin, profit, and have fun.” No business suit or pretentious expertise is required.

Memecoins quickly rise and attract speculators with promises of high returns. However, their prices are driven by market sentiment rather than real value, making them a high-risk investment where losses can be substantial.

The accessibility of memecoins is both their strength and their downfall: while they are theoretically designed for fair distribution among retail investors, in practice, a large portion of the supply is often controlled by developers and flash-bot operators.

It’s also crucial to note that the meme coin market remains vulnerable to manipulation. Unscrupulous developers, celebrities, and influencers frequently use memecoins to execute Pump & Dump schemes.

Typically, these schemes unfold in three stages:

1. Creating the memecoin and distributing tokens across multiple wallets to build an illusion of decentralization.
2. Generating buzz on social media and partnering with KOLs to attract attention, especially from retail investors.
3. Using everyday traders as exit liquidity, selling them tokens that were previously allocated to "strategic" wallets with no actual value.

Eventually, the hype around the meme coin fades, and the token supply is scattered among regular investors. With the scheme’s orchestrators having exited, interest and demand vanish. Token holders are then left trading among themselves, and liquidity dries up.