The Dark Side of Memecoins: How to Spot and Avoid Scams

Anyone who has spent a significant amount of time on the internet is familiar with memes. Their influence on internet culture has been so profound that they have crossed over from social media into the world of cryptocurrencies.

Anyone who has spent a significant amount of time on the internet is familiar with memes. Their influence on internet culture has been so profound that they have crossed over from social media into the world of cryptocurrencies.

Some of the most popular meme coins include Dogecoin (DOGE), Shiba Inu (SHIB), and Pepe (PEPE). These tokens often experience explosive growth due to their playful nature and strong community backing.

However, in recent months, meme coin investors have fallen victim to numerous scams, including pump-and-dump schemes and rug pulls.

So, what are the biggest risks associated with meme cryptocurrencies, and how can investors protect themselves?

One of the biggest risks of meme cryptocurrencies is their unstable prices. Their value goes up and down based on market trends and online hype, making them unpredictable and risky for investors.

For example, in 2021, Elon Musk tweeted about Dogecoin, causing its price to jump by over 50%. But later, when he called Dogecoin a scam on Saturday Night Live, the price dropped by 30% in less than an hour. This shows how quickly meme coins can rise and fall.

Howl Labs CEO Ivan Perez says meme coins are often like a gamble. Their value depends mostly on how big and active their community is, rather than any real use.

“Meme coins are a different beast altogether. They are usually created as a joke or a parody of something else, and their value is mostly driven by hype and community engagement rather than any intrinsic use case or fundamental value.”

Because meme coins are highly speculative, scammers often target them for fraud and pump-and-dump schemes. The lack of clear rules in the crypto world makes them even riskier.

Before investing in meme coins, remember that you could lose all your money. It’s important to do proper research and not invest more than you can afford to lose.

Some meme coin scams mislead investors about what they really are. They may claim to have a large community of buyers or a strong team of developers working on a big project when, in reality, neither exists.

A common scam is the “honey pot,” which combines elements of traditional fraud and pump-and-dump schemes. Here’s how it works: A scammer creates a new token and quickly buys a large amount to drive up its price.

This sudden spike gets the token featured on trending lists in analytics tools like Dextools, attracting more traders who want to profit. The catch? The scammer programs the token’s smart contract so only their wallets can sell. Investors keep buying, thinking the price is rising naturally, but they can’t sell their holdings.

Eventually, trading platforms recognize the scam and warn users. By then, the scammer sells their tokens at the inflated price, making huge profits while others are left with worthless assets.

Another trick scammers use is copying popular meme coins. They create fake versions of well-known tokens, making investors believe they are buying the original when, in fact, it’s just a worthless knockoff.

For example, there have been several fake versions of the PEPE token created, tricking investors into buying them instead of the real thing.

Instead of relying purely on hype, some meme coin projects aim to establish a more legitimate and sustainable presence in the space. One such example is Mind of Pepe, which positions itself as more than just a meme coin.

The project emphasizes community engagement and a clear long-term vision. While it is still crucial for investors to conduct their own research, projects like Mind of Pepe highlight that not all meme coins are created with the same intent.

Perhaps one of the most common scams in the meme coin ecosystem are pump-and-dump schemes. They involve a coordinated effort by a group of investors to artificially inflate the price of a cryptocurrency, thereby pumping it up by spreading positive propaganda online and encouraging others to invest in it.

Once the token hits a certain maximum price, the orchestrators sell their holdings, thus getting rid of everything they had on it, causing the price to plummet and everyone else to lose money.

Howl Labs’ Perez explained that in most cases, meme coin projects that experience a pump-and-dump scheme die due to the fact that the orchestrators control all of their liquidity.

“If most of the liquidity is in a couple of hands, as soon as they leave, the price falls and the liquidity becomes so diluted that even trying to sell becomes very difficult because of the slippage.”

YouHodler Head of Markets Ruslan Lienkha added that within the crypto world, pump-and-dump schemes are much more common as it is “easier to manipulate investor sentiment.”

“Many crypto traders simply do not have any experience in traditional financial markets in their background. Therefore, coins with very low capitalization, lack of regulation, and easier ways to target potential investors via social media (with misleading information campaigns, etc.) make the scheme much more efficient and easier to implement.”

He added that speculations have recently