Memecoins have been making headlines recently, largely thanks to the launch of the President’s $Trump coin. Following this phenomenon, the U.S. SEC clarified that, for the most part, memecoins do not qualify as securities under the Howey test. Nevertheless, financial advisors can expect inquiries from clients about these speculative assets.
In this week’s edition of crypto for advisors, Janine Grainger from New Zealand-based Easy Crypto dives into the mechanics of memecoins, their associated risks, and why understanding them is crucial for clients. Additionally, Kieran Mitha, a next-gen investor, addresses common questions about memecoins in our Ask an Expert segment.
You’re reading Crypto for Advisors, CoinDesk’s weekly newsletter that unpacks digital assets for financial advisors. Subscribe here to receive it every Thursday.
Memecoins: Boom, Bust and Billion-Dollar Bets
On January 17, the meme coin $Trump was launched by the President-Elect, reaching a market value of $14.5 billion within just 48 hours before subsequently dropping by two-thirds. The entities behind this coin reportedly earned nearly $100 million in trading fees within two weeks, while countless retail investors faced substantial losses. Following this, a surge in Dogecoin’s value — by 150% after Trump announced the Department of Government Efficiency (DOGE) in late 2024 — illustrated the hyper-reactionary nature of the memecoin market.
Such occurrences have repositioned meme coins on the radar of investors seeking exposure to digitally-driven assets. However, because they are often propelled by hype rather than intrinsic value, these investments carry considerable risk, particularly for high-net-worth clients eager to explore further.
Figure 1: CoinDesk analysis showing the sharp decline of $TRUMP shortly after launch.
What are memecoins?
Memecoins are cryptocurrencies rooted in internet culture, social media trends, or humor. Unlike Bitcoin or Ether, which have established uses and a growing case for portfolio inclusion, memecoins primarily thrive on community sentiment, hype, and endorsements from celebrities. While they may start as jokes, they can quickly gain traction through viral marketing, albeit usually in a fleeting manner.
Why meme coins matter
Memecoins have captured mainstream attention due to their cultural significance and potential for dramatic short-term profits. High-profile endorsements — like those from Elon Musk — can create sudden price rallies, amplifying speculative interest. Yet, these assets are fraught with high volatility, making them attractive yet dangerous for traders.
The value of memecoins can spiral to remarkable heights or plummet within hours. For instance, the joke token ‘Fartcoin’ reached a $2.2 billion market cap before collapsing as early adopters sold off their holdings. Platforms like Pump.fun have exacerbated this speculative fray by enabling users to create and exchange memecoins with ease, flooding the market with ephemeral tokens.
But are they legal?
Ironically, the SEC’s regulatory perspective has allowed memecoins to flourish. In contrast to utility-focused cryptocurrencies that undergo scrutiny, memecoins occupy a gray zone, as they don’t promise a financial return to investors, thus spurring their growth.
The dark side: rug pulls and scams
Unfortunately, the memecoin landscape is notorious for ‘pump-and-dump’ schemes where influencers hype a token to inflate its value, only to cash out and leave regular investors with worthless assets.
A glaring instance involved viral personality Hailey Welch with the coin $HAWK, which saw its market cap approach half a billion dollars before crashing, spurring fraud allegations. Similarly, after promoting $LIBRA, Argentine President Javier Milei ignited outrage when the token surged and then crashed, leading to scrutiny over potential market manipulation. These scenarios underscore the perception that memecoins often lack real value or sustainability.
Figure 2: CoinDesk insights on the $HAWK decline post-launch.
Memecoin investment considerations
For investors contemplating entry into the memecoin space, it is vital to exercise caution since many such tokens lack transparency. Key risks include:
- Liquidity: Minimal trading volumes can lead to extreme price fluctuations, complicating entry and exit strategies.
- Community sentiment: Price movements are heavily influenced by social media. Active participation on platforms like Twitter and Telegram can offer market insights.
- Tokenomics: Different memecoins adopt varying scarcity mechanisms, impacting their long-term viability.
- Pump-and-dump risk: Tokens aggressively marketed with exaggerated promises often hint at temporary hype cycles rather than sustainable investments.
- Early entry vs. longevity: While early investments can yield substantial returns, the risk of a rapid downturn remains high. Some investors prefer established memecoins with active communities instead of chasing after trending tokens.
While the allure of quick profits exists, memecoins’ volatility and propensity for manipulation label them as high-risk assets. Advisors are encouraged to educate clients about the speculative nature of these investments while emphasizing robust risk management strategies. In many ways, investing in memecoins resembles gambling more than traditional investment methodologies.
–Janine Granger, CEO, Easy Crypto
Ask an Expert
Q: I see people on social media getting rich from memecoins… Can I do the same?
A: Although some individuals have certainly realized substantial returns from memecoins, it’s essential to recognize that social media often highlights success while neglecting the numerous investors who incur losses. Memecoins embody high-risk scenarios, where prices fluctuate largely based on hype, renowned endorsements, and market sentiment rather than solid fundamentals.
If you are thinking of investing, proceed with caution. Timing your entry may prove critical since many late-stage purchases occur when the initial euphoria wanes or when a rug pull develops. Treat any investment as a high-risk venture, never committing more capital than you can afford to lose, and ensure diligent research backs your decisions.
Q: What role does community play in the success of a memecoin?
A: The community constitutes the foundation of successful memecoins, influencing overall project sentiment. Unlike traditional investments where value often correlates with measurable metrics, memecoins prosper on social media engagement, viral phenomena, and grassroots support. An active, enthusiastic community can drive memecoin acceptance, while waning interest can cause even popular projects to fizzle out. Before investing, assess the vitality of the community across platforms like X, Discord, and Reddit.
Q: How can I learn about memecoins before investing?
A: To gain insights into memecoins, it is prudent to engage in thorough research and immerse yourself in relevant communities. Start by following reputable cryptocurrency news sources, analyzing whitepapers, and tapping into discussions on forums such as Twitter, Reddit, and Discord. Pay close attention to critical elements like the project’s website, roadmap, developer involvement, and tokenomics.
Understanding the inherent risks is crucial — memecoins are often characterized by speculation; therefore, familiarizing oneself with market trends, trading strategies, and potential scams can empower better decision-making. Refrain from relying solely on hype or social media influencers; performing comprehensive due diligence is vital.
–Kieran Mitha, crypto enthusiast & communications major
Keep Reading
The establishment of the U.S. Bitcoin Strategic Reserve and the Digital Asset Stockpile was announced at the inaugural Digital Asset Summit at the White House.
On a related note, the OCC released a statement last Friday permitting U.S. banks to hold crypto alongside other asset classes.
Finally, the U.S. Bitcoin Act of 2025 was introduced to the House on Tuesday.
