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Digital Asset Digest: The dangers behind meme coin madness
Over the last few weeks meme coins seem to be everywhere. On social media, traditional news channels, and even on the London underground and buses, which are hosting a big campaign for Floki, the latest dog-themed coin to emerge in honour of Elon Musk’s new puppy. But what are the dangers of this meme coin madness and should investors be concerned?
Meme coins are not a new thing. Dogecoin dates all the way back to 2013, when Jackson Palmer conceptualized the idea by purchasing the domain Dogecoin.com and adding a splash screen with the Dogecoin logo and comic sans text. However, recently meme coins have exploded in popularity, bridging the gap between crypto and traditional media.
Recent data from Bacancy Technology shows the transformational power of meme coins in changing the public perception of crypto. It shows that Dogecoin is by far the most searched for cryptocurrency in the US so far this year, with 2.3 million more monthly searches on average than Bitcoin itself.
Source for image: https://cointelegraph.com/
Dog-themed meme coins
Over the past year, we have seen the launch of Shiba Inu, a coin created by an anonymous group that celebrates the same plucky breed of Japanese hunting dog that inspired Dogecoin. Launched in August 2021, Shiba Inu is now the third largest token by market capitalization after USDT and USDC, sitting at close to $30 billion market cap, according to CoinMarketCap.
Source: https://coinmarketcap.com/, Nov 12, 2021
Of course, when Elon Musk acquired a Shiba Inu puppy, publicly naming it Floki, this just added fuel to the fire, resulting in the launch of a Floki Inu coin. In fact, dog-themed coins are so popular now, they have a whole section of their own on CoinMarketCap, entitled Top Doggone Doggerel Tokens, with a total market cap of more than $65 billion.
Source: https://coinmarketcap.com/, Nov 12, 2021
Meme coin madness seems to be shifting the entire crypto ecosystem, as newcomers to the sphere see this as a more fun way to trade (or gamble?). And with the astronomical returns seen on some of these coins – the approximate return on investment (ROI) for Shiba Inu is a mind-boggling 3,313,758% if bought at launch, according to CoinMarketCap – it is no surprise speculative money is flowing into these investments.
Yet recent weeks have also shown the darker side of meme coins, as a number of cases of fraud have been unearthed among some of these trending investments. One that perhaps most of us have heard of is the collapse of the Squid Game token, inspired by the popular South Korean Netflix series of the same name.
Touted as the most watched series on Netflix ever, Squid Game tells the story of a cruel competition for unimaginable wealth, where desperate adults must play children’s games – with deadly consequences for losing. The new coin capitalized on the show’s success, with its price rising from just 1 cent to over $2,856 in a single week.
However, just as quickly, the project was wound down and the developers took off with all of investors’ cash – some $3.38 million, according to estimates. The internet is rife with stories of people who invested large amounts of money into SQUID, some even all of their savings, only to see this money disappear.
The SQUID example also highlights the extreme price volatility of these meme tokens. They are likely to experience wild price swings in both directions – negative as well as positive – since there are no underlying fundamentals supporting the value of these tokens, other than pure speculation.
What is a rug pull?
The kind of scam Squid Game token investors fell victim to is called a rug pull in crypto lingo. A rug pull is a malicious maneuver whereby the developers of a coin or token abandon the project and run away with all the funds. And unfortunately, the danger of getting sucked into a rug pull for investors is all too real.
Another rug pull that recently made the news is the AnubisDAO scandal, another dog-themed project, named after a Greek god with the body of a human and the head of a dog. AnubisDAO was promoted as a fork of OlympusDAO, a legitimate decentralized finance (DeFi) project which publishes news and research about digital assets.
Despite the lack of information on AnubisDAO itself, investors poured $57 million worth of Ether into the token sale to support the project, which was all lost when the developers took the money and ran. One investor, who spoke to CNBC, lost as much as $470,000, describing this as “pretty painful”.
The bottom line
So what is the takeaway from all this? Yes, some people have made lots of money by investing in meme coins. But this is no reason to blindly put money into any investment, just because it’s the flavor of the month. Crypto investors must always, always be aware of potential scams and research a project thoroughly before investing, arguably even more so when it comes to meme coins.
There are many ways to spot a rug pull. Check the liquidity of a token, watch out for tokens whose prices are skyrocketing, and be mindful of marketing tactics that capitalize on recent popularity. Always do your own background research before investing, and remember: if something seems too good to be true, it most probably is.