Meme coins: The modern gold rush might be digital, but the old wisdom still holds true

While major cryptocurrencies like Bitcoin and Ethereum were designed with specific technological problems to solve and clear ideologies in mind, meme coins –

Major cryptocurrencies like Bitcoin and Ethereum were designed with specific technological problems to solve and clear ideologies in mind. On the other hand, meme coins, which are named with an “s” at the beginning and rhyme with “bit” in crypto circles, exist primarily for speculation and amusement.

Of the 3700+ meme coins in existence, most have no intrinsic value beyond entertaining their creators and online speculators.

However, their popularity continues to surge among retail investors chasing the next big win, driven by social media hype and the fear of missing out on potential gains.

Warren Buffett, often regarded as the world's greatest investor, described cryptocurrency bluntly as something that “produces nothing”. In his view, it's a game of passing the parcel, where the only way to profit is by selling to “the next person who comes along”.

This perfectly illustrates what economists call the “Greater Fool Theory” – the idea that the price of an asset is determined not by its intrinsic value, but by the expectations that a “greater fool” will pay more for it in the future.

This is something to consider as more Kiwis get drawn into the latest investment crazes.

The phenomenon of meme stocks, where share prices are driven by social media hype rather than business fundamentals, hasn't gone away either. It's as if the financial markets have developed their own form of viral trends, like what we see on TikTok or Instagram.

But unlike a viral dance challenge that costs nothing to participate in, these trends involve real money and real risks. The volatility in these markets can be extreme, with prices swinging wildly based on nothing more than tweets, Reddit posts, or celebrity endorsements.

Take the recent launch of the “Trump Coin” and “Melania Token”. These digital tokens represent a concerning trend where investment decisions are increasingly driven by personality cults rather than sound financial principles.

If the crypto world wanted to escape its reputation as an industry of grifters running on nothing but hype, the $Trump and $Melania “meme” coins were a bad start. Within hours of launch, $Trump's value skyrocketed by 600%, reaching a market cap of $32 billion.

While Trump's personal wealth grew by 89% in just three days, an estimated 77% of coin buyers made less than $100 profit, with just 60 investors pocketing more than $10 million each.

The recent HawkTuah coin (yes, the meme coins truly never stop) disaster serves as a stark reminder of how quickly crypto investments can evaporate and have no financial grounding.

When you step back and consider that people invested hard-earned money in a meme coin created off the back of internet stardom from a random street interview, the madness becomes apparent.

Investors poured money into this hyped-up token and watched their investments disappear almost overnight, leaving nothing but empty digital wallets and harsh lessons about the dangers of following investment trends without proper due diligence.

Stewart Group has been around for 38 years this week – our doors hadn't even been open a year when the stock market crash of 1987 happened. For those Kiwis who also remember that pain or the later finance company collapses of 2006-2008, these new investment fads should be setting off alarm bells.

The challenge for many Kiwis is navigating this new landscape while staying grounded in financial reality. While the allure of quick profits can be tempting, especially when we see stories of overnight crypto millionaires, the risks often outweigh the potential rewards.

The volatility in these markets can be devastating for the unprepared and sophisticated investors looking for “the next thing”, and the lack of regulation means there's little protection when things go wrong.

It's just not worth the risk. So, what's the sensible approach?

Start with the basics: build an emergency fund, contribute to KiwiSaver, and if you're interested in investing, begin with diversified index funds rather than speculative assets. Would you put your house deposit or retirement savings into a digital token named after a politician? Probably not. So why risk any money you can't afford to lose?

The fundamental principles of sound investing haven't changed – diversification, long-term thinking, and understanding what you're investing in remain crucial.

One thing's for certain – in the game of “Greater Fools”, somebody always has to be the last one holding the worthless asset. It's better to watch from the sidelines than risk becoming that final, greatest fool in a game where the odds are stacked against you.

The modern gold rush might be digital, but the old wisdom still holds true: all that glitters is not gold, and if something seems too good to be true, it probably is.