While meme coins have been around for more than a decade now, it's only in the past few months that they have really tipped into the mainstream. Social media influencers, celebrities, and even high-profile politicians have launched meme coins, and the total valuation of the meme coin market is now more than $50 billion.
However, if you're counting on meme coins to help you become a crypto millionaire, think again. Here are three important things to keep in mind the next time you're tempted to invest in a meme coin.
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Meme coin valuations can be misleading
Five meme coins now have a market cap above $1 billion, led by Dogecoin (CRYPTO: DOGE), a dog-themed meme coin with a staggering $30 billion valuation. With a market cap like that, surely there's some value somewhere, right?
Wrong. Meme coins are not backed by any real-world assets. They're not even backed by virtual assets. In fact, many meme coins start as internet jokes. If you visit a meme coin website, some will outright tell you that they are worthless and that investing in them is for entertainment purposes only.
Image source: Getty Images.
So, how do these meme coins get to billion-dollar valuations? The answer is easy. Most meme coins have astronomically high coin supplies, measured in the hundreds of billions, if not the hundreds of trillions. The rest is simple math. If a coin supply is 100 billion, all you need is a market price of $0.01 to hit a $1 billion market cap.
Dogecoin, for example, has a coin supply of 148 billion. And that's on the low side. Bonk has a coin supply of 77 trillion. Pepe has a coin supply of 420 trillion. And Shiba Inu (CRYPTO: SHIB) has a coin supply of 589 trillion.
Short-term returns are almost impossible to replicate over the long haul
Meme coins, by their very nature, are meant to be fleeting and ephemeral. As soon as a funny meme appears on the internet, somebody usually makes a coin based on that meme, and the game begins. But memes come and go, and after a month or two, most meme coins collapse in value.
This makes it close to impossible to replicate short-term performance over a longer time horizon. Most meme coin investors are only there for short-term gains, and if those gains do not immediately materialize, they're soon off to the next big meme coin.
In many ways, Dogecoin is the outlier here, having been around for more than a decade. It remains to be seen if the big meme coin launch of 2025 -- the Official Trump meme coin -- will have the same kind of staying power.
"Buy low, sell high" is harder than it sounds
Even if you do find the right meme coin, it can be extraordinarily difficult to profit from it. To buy at the lowest price, you often need to be an insider, such as a social media influencer who is being paid to promote the meme coin or a member of the official launch team.
By the time you realize it's time to sell, it's usually too late. Often, you're forced to sell at a huge loss when a meme coin is already headed to zero. You can literally wake up one morning to find out that your favorite meme coin is almost worthless. Yes, 1% of investors may be able to exit with a profit, but the other 99% lose money.
The dirty little secret of meme coin investing is that once a coin has been listed on a reputable cryptocurrency exchange such as Coinbase Global, it's game over. The coin has already been trading on much smaller decentralized cryptocurrency exchanges, and these early crypto investors are salivating at the thought of newbies suddenly buying the coin at a much higher price than it's worth. It's the Greater Fool Theory at work.
But aren't there stories of meme coin millionaires?
During the previous crypto bull market cycle, some people became crypto millionaires by investing in Dogecoin or Shiba Inu at exactly the right time. Some people invested their entire life's savings in a single coin, hoping to hit it big. And some actually did.
But here's the thing: That was almost five years ago. The game has changed a lot since then. There are now hundreds of thousands of meme coins, not just a small handful. Thanks to innovations such as Pump.fun, it's now possible to build, launch, buy, and then flip a meme coin in a matter of hours.
If you're even an hour late to the party these days, you probably won't make any money. Just ask the people of Argentina, who recently saw the value of the $4.5 billion Libra meme coin collapse by 97% in just a few hours while a few select insiders apparently walked away with all the profits.
Admittedly, the idea of turning a few hundred bucks into a life-changing amount of money is very enticing. But meme coins are built on hype, buzz, and speculation. They were never designed to be real investments and don't deserve a place in your long-term portfolio.
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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 the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
