The Poisoned Chalice: The Risks of Meme Coins

- 97% of meme coins fail or become inactive after launch - General investors suffer significant losses due to pump-and-dump strategies [Unblock Media] A recent report by Binance Research has warned of the high risks associated with the meme coin market. According to the report, 97% of meme coins fail or become inactive shortly after launch. The report particularly highlights that manipulated pump-and-dump strategies cause substantial losses for general investors. This strategy involves recruiting thousands of users in specific Telegram and Discord groups to pre-purchase a specific meme coin, followed by a short-term price surge. Once the leading group sells their assets, general investors incur significant losses. For example, in May 2021, the price of a particular coin surged 300% in one day and then plummeted 90%. These strategies lead to extreme trading volume and price volatility, exposing general investors to substantial risks. While meme coins promise high rewards, the report warns that these highly volatile assets are replete with various pitfalls. Economic pressure among the younger generation is cited as a principal reason for the rise of meme coins. Two key factors—wage stagnation and rising living costs—have driven younger people to seek new financial opportunities. Particularly, Millennials and Generation Z have shown interest in assets outside traditional markets. The COVID-19 pandemic and its ensuing economic aftermath have accelerated this trend. During the uncertain economic situation of the pandemic, investors sought opportunities to achieve significant returns with relatively small capital, causing meme coin trading volume to surge from the second half of 2020. Notably, Dogecoin saw a price increase of over 800% in early 2021. Investors, in pursuit of quick profits, increasingly bet on speculative assets like meme coins. Meme coins offer a narrative of fairness and community engagement, making them friendly and approachable for new investors. However, the report cautions that this appeal can foster misconceptions among investors, as most meme coins rely solely on viral marketing and speculative fervor without intrinsic value or technological innovation. Beyond finance, meme coins are used as tools to express digital identity and cultural symbolism. The report compares this phenomenon to the Gamestop event of 2021, suggesting that meme coins can be seen as a form of social resistance against traditional financial systems. This aspect contributes to their viral spread. Unlike the Gamestop stock incident, many meme coins are formed around "memes" and community rather than actual assets or technological value. The explosive growth of meme coins poses a risk of overshadowing projects aimed at advancing blockchain technology. Due to the liquidity issues caused by the meme coin craze, projects with technological goals, such as DeFi projects or existing blockchain platform updates, struggle to attract investment. While meme coins showcase the blockchain's potential to unite global communities, the prioritization of assets with mere cultural impact over those with technological objectives is problematic. Consequently, there is a concern that innovative technological projects driving the future of the cryptocurrency industry may lag behind. Binance Research's report provides specific warnings about the attractiveness of meme coins and the underlying risks. It is crucial for investors to make informed decisions based on a deeper and more comprehensive understanding of blockchain and cryptocurrency.