In an interesting series of events, Q1 2024 has seen a phenomenon that has turned heads and opened wallets: the meteoric rise of memecoins. While cryptocurrency has often been the digital wild west of investment, nothing quite embodies its gold rush spirit like these viral tokens.

A memecoin is a type of cryptocurrency that is often inspired by memes, social media, and internet humor. Unlike traditional cryptocurrencies like Bitcoin or Ethereum, which were created with specific technological or financial objectives in mind, memecoins typically originate from internet culture and are often created as jokes or to embody a community-driven project without a clear utility at the outset. The most famous example of a memecoin is Dogecoin (DOGE), which started in 2013 as a joke based on the "Doge" internet meme featuring a Shiba Inu dog. Despite its origins, DOGE had a strong following and its market cap grew to $93 billion in mid-2021, helped in part by Elon Musk’s incessant tweets about it.

Memecoins thrive on the very human currency of attention. The commitment a community is willing to invest—be it time, energy, or capital—is what ultimately endows a memecoin with value. Today's instant information ecosystem means that attention can translate into significant monetary value at unprecedented speeds. It's a concept that turns traditional asset valuation on its head. To truly grasp the essence of memecoins' appeal, we look back to the GameStop meme stock saga, where a band of retail traders, armed with social media and trading apps, orchestrated a battle against established hedge funds that were short on the video game company’s stock. The incident underscored a profound shift—value could be conjured through collective action and belief. Community coordination to short squeeze and liquidate hedge funds that were shorting the stock was initiated on Reddit community “r/wallstreetbets”. It is not uncommon for memecoin activity to start on obscure forums such as 4chan or niche reddit communities prior to becoming mainstream. Melvin Capital – a leading Wall Street hedge fund lost 49% of its investments and required a $3 billion bailout after the short squeeze. The fund shut operations in 2022 as it never recovered from the loss. The saga is telling of the power of internet virality.

Investing in memecoins can evoke the thrill of buying a lottery ticket—yet, with notably better odds. Where traditional lottery chances are often minuscule, memecoins present a dynamic, if volatile, opportunity for exponential returns. It's a comparison that resonates in the world where annual lottery spendings reach staggering amounts. The world spends a whopping $250 billion annually on lottery tickets. Sophisticated crypto traders use this number as one of the key factors to justify positions in memecoins. For the retail investor, memecoins offer a unique proposition, merging the speculative excitement of high-stake gambles with the potential for unprecedented financial windfalls.

Dogecoin attained a peak market cap of $93 billion in 2021

Source: Coingecko

However, memecoins have proven to be a double-edged sword, offering opportunities for staggering gains and equally significant risks. Their speculative nature has led to a slew of rug pulls and scams recently, overshadowing the sector's potential and placing the credibility of the broader cryptocurrency market in jeopardy. Several market participants have voiced concerns about the amount of capital being poured into memecoins, potentially at the expense of other more important Web 3 projects.

Memecoin investing has become so popular that even Ethereum founder Vitalik Buterin authored a thought piece to weigh in on the mania, and how it can potentially be used as a force for good. He suggests launching projects such as “AntiCancerCoin” or “ClimateCoin” could directly contribute to causes, with the public's investment choices steering the direction of funding and support. Leading by example, in 2021, Vitalik donated $1.2 billion worth of SHIB (another dog themed memecoin that went viral in 2021) to Polygon Founder Sandeep Nailwal’s Covid relief initiative to help tackle the second wave of the virus in India.

Some investors have taken an alternative route to memecoins. Earlier last year, Telegram bot tokens represented a way to get horizontal exposure to memecoins as these bots were the preferred platform to snipe memecoins almost as soon as they launch. Traders have now migrated to other platforms, particularly decentralized exchanges and aggregators that are quick to list memecoins. Solana and Base Layer 2 have become the destination blockchains for memecoin traders, offering fast confirmation times and low transaction fees.

Multiple new platforms have launched that allow anybody to launch memecoins within seconds on Solana. Purchasing the native tokens of blockchains or DEXs on which memecoins are traded is an alternative way to place an index bet on memecoin activity, although the upside is far lower than investing in a viral memecoin. Despite there being many Layer 2s, Base has become the preferred chain simply because of their connection to Coinbase. Traders foresee a major share of memecoin activity to come directly from the retail facing Coinbase app. Coinbase will likely fully integrate a wallet through which Base will be easily accessible in their app. Solana and Base’s daily active users, transaction count and revenue from transaction fees have all spiked in Q1 2024 primarily due to the memecoin mania. The most viral memecoin on Solana – DogWifHat (WIF) saw its price increase by 2,700% this year. The token is currently 35th ranked on Coingecko with a market cap of $4.3 billion.

Activity on the Solana network spiked due to a Memecoin airdrop

Source: Messari

The success of memecoins in drawing attention to a chain has led the Avalanche team to launch a memecoin fund worth $100 million. Another Layer 2 – Blast – has announced that they would rewarding memecoin traders on their chain. Blockchains are attempting to use memes as a distribution strategy and generate their own native culture.

Memes are a crucial part of internet culture and their virality requires traits that appeal to a mass audience. For the likes of Dogecoin (DOGE), Shiba Inu (SHIB), DogWifHat (WIF) and other dog themed coins it is their cutesy aesthetic image. There is now a new sub-vertical of cat themed memecoins which are also taking off for the same reason. Another category of memecoins, that have been garnering extensive online attention are political coins.

Recent trends have seen the rise of political memecoins, where political figures are morphed into digital tokens. Coins such as "Jeo Boden" (BODEN) and “MAGA” (TRUMP) encapsulate the polarizing spectacle of politics within the crypto sphere. Their performance is not just a measure of market dynamics but a commentary on political allegiance and cultural sentiment, turning the market into a public square for political discourse. Election punters view these coins as a way to bet on the growing popularity of a candidate or possible outcome of the upcoming US elections, effectively turning them into prediction markets. BODEN coin is conceptualized from a 2010 meme of a poorly drawn Donald Duck on MS Paint with misspelt captions called Dolan. The humorous element of BODEN enhanced its appeal to speculators making it the coin representing Joe Biden for crypto traders. The market cap of BODEN is $240 million, after rising 1,500% in March alone. TRUMP has a market cap of $184 million, having risen 1,700% in Q1 2024. Increasing election activity in the second half of 2024 is expected to cause an increase in volatility and trading volume of election based memecoins.

For investors, memecoins offer a spectrum of strategic entry points. Whether one opts for the direct acquisition of these digital tokens or the more circumspect route of investing in exchanges and trading platforms, the memecoin market demands a blend of foresight, caution, and an appreciation for the cultural forces at play. It's a sector where investment wisdom meets the pulse of pop culture, creating a market as diverse and unpredictable as the internet itself. A measure of prudence is essential for those seeking to participate in this speculative space.

The memecoin saga continues to unfold, a narrative-rich with the spirit of a digital age that reveres the viral as much as the tangible. As we look to the future, one thing remains clear: in the world of cryptocurrency, attention is not just a commodity; it's the currency of an emerging economy that thrives on the very human need to connect, entertain, and be entertained.