Memecoins set to profit from launch of spot Bitcoin ETFs

The approval of spot Bitcoin exchange traded funds (ETFs) in the US paves the way for wider mainstream adoption of crypto assets in general. Memecoins such as Dogecoin, Shiba Inu and Pepe may benefit. However, investors need to be aware of the extreme price volatility of this niche asset class as well as other inherent risks.

Memecoins are a specific type of cryptocurrencies. Even though memecoins don’t serve any serious purpose or utility and lack fundamental value, they have attracted billions of dollars thanks to enthusiastic communities, viral marketing on social media channels and speculation. 

They typically originate from Internet memes, satires or jokes such as Pepe the frog or the Shiba Inu dog, Doge. The memecoin Dogecoin that resulted from the picture of this dog exists since 2013. A decade later, its market cap is valued at approximately 12 billion US dollars, making it the largest memecoin. The other leading ones are Shiba Inu, Pepe Coin and Floki Inu. The combined market cap of this trio totals 6 billion dollars.

Memecoins do have a major inherent risk linked to them – their extreme volatility. They often rely on hyped posts on social media channels such as X, Instagram or Facebook to drive their demand. A schoolbook example of this is Dogecoin, the preferred crypto coin of Elon Musk. In April 2023, he exchanged the logo of X (at the time still called Twitter) to that of Doge. This simple move boosted the price of Dogecoin by more than 30 percent.

Another example is the creation of a couple of memecoins inspired by approval of the spot Bitcoin ETFs. The memecoin “ETF” (officially an acronym for Electric Turkey Frier) skyrocketed 30,800 percent to just over 2 cents within minutes of the SEC’s long-awaited announcement. Its trading volume reached 775,000 dollars, Decrypt reports. Three weeks later, the market cap of this highly speculative coin is a mere 1,400 dollars, the decentralized crypto exchange Raydium shows.

Scammers are obviously drawn to such financial products, which are not only are easy to set up, but also have the potential to generate substantial returns in a few hours. According to a post on Binance Square, a memecoin can be created in just 27 seconds! An attractive skill for dishonest people. One criminal for instance created 114 memecoin scams last spring, reportedly amassing more than 110,000 dollars in ill-gotten gains.

Memecoins should nevertheless perform in line with the other crypto coins over the coming months. The launch of the first spot Bitcoin ETFs earlier this year is likely to be followed by spot Ether ETFs in May. This and the up-coming Bitcoin halving should push their prices higher.

The crypto profile Chris Blec, however, calls for caution regarding memecoins. “Big money, powerful people & careful planning goes into creating these scams. You’re just a pawn in a much bigger game. And games like this have cost many people their lives,” he wrote on X during the midst of the latest memecoin rally in May.