Understanding the Rise and Fall of Memecoins: A Deep Dive into the Market's Obsession With Quick Gains and Susceptibility to Manipulation

In a sweeping analysis released on November 4, 2024, Binance Research, the research arm of the world's largest cryptocurrency exchange, uncovered stark realities within the meme coin market.

Binance Research, the analytical division of the world's leading cryptocurrency exchange, has conducted an extensive analysis of the meme coin market, revealing some sobering truths.

The report, titled Understanding the Rise of Memecoins and spearheaded by Binance's Macro Researcher Josh Wong, highlights that a staggering 97% of meme coins have experienced a drastic decline in trading volume, rendering them practically defunct. This underscores the inherent volatility and susceptibility of these tokens to market manipulation.

In Wong's words: Picks for you

“The majority of memecoins born from the frenzy of 2023 and 2024 have proven to be fleeting. A full 97% have already died, reaching near-zero trading volumes.”

This rapid rise and subsequent collapse, in the case of many of these tokens, speaks to the market's infatuation with quick gains and speculative trading, often at the peril of retail investors.

Meme coins' high volatility

The report, shared with Finbold, also reveals that meme coins, owing to their simplicity and accessibility, are proliferating at an unmatched pace.

Over 75% of these tokens emerged within the last year alone, enabling them to garner market interest and forge communities at a rate far swifter than traditional technology-backed altcoins.

As Wong explains:

“The time-to-convert for a memeccoin consumer is much shorter than that for a technology-focused altcoin investor, leading to a rapid propagation of their narratives.”

This fast-paced environment has seen capital flowing into memecoins at breakneck speed. For instance, the memecoin WIF attained a $1 billion market cap in only 104 days, compared to Shiba Inu's (SHIB) 279 days and Dogecoin's (DOGE)—a veteran in the meme market—eight years.

The ease with which new memecoins can be created has resulted in a continuous influx of novel tokens, each vying for attention and investment in an increasingly competitive market.

While the majority of memecoins struggle to maintain relevance, a select few, such as DOGE and Shiba Inu, have shown longevity. Dogecoin, now over a decade old, and SHIB, at four years, embody the rare exceptions in a market dominated by short-lived tokens.

However, their success highlights the broader trend—for most meme coins, the survival rate is remarkably low, with only a handful capable of building sustainable ecosystems and dedicated communities.

Risks of Pump-and-Dump schemes

Despite the allure of quick gains, Binance Research also sounds the alarm on the substantial risks involved.

“The rapid rate of growth and speculation makes memecoins an investment vehicle with high potential for outsized returns,” Wong says, “but their heavy reliance on market sentiment, with little else to support their valuations, also makes them an extremely risky asset class.”

Furthermore, the report acknowledges that the meme coin market is prone to exploitation tactics, particularly pump-and-dump schemes designed to create exit liquidity for early adopters and insiders at the expense of retail traders. While meme coins offer enhanced transparency and ease of access, these attributes have not entirely shielded investors from predatory practices.

As new memecoins continue to flood the market, investors are advised to proceed with caution, recognizing that the potential for outsized gains is matched by equally outsized risks. For every DOGE or SHIB that defies the odds, dozens of tokens inevitably fade into obscurity.