Celebrity memecoins: Risks of the emerging trend

What are memecoins?

A memecoin is exactly what it sounds like- a crypto asset based on a meme. These tokens are typically inspired by popular internet memes, trends or characters such as Dogecoin and Shiba Inu.  

Memecoins have emerged as humorous cryptocurrencies which are usually associated more with entertainment and fun than with real utility. The main element that drives a memecoin’s value is the meme or trend it is based on. 

Community engagement is a key feature of the memecoin space. These communities are more than simple token owners - in fact, they actively shape the narrative and value of memecoins on the memecoin market.

However, memecoins are well-known for their speculative nature since they can go through rapid ups and downs based on viral moments and social media trends. They are considered to be highly volatile and risky assets. 

The crypto space had its share of crazy moments. To find out more, we suggest reading this article: 'From dogs to dictators: Crypto's craziest coins'.

Three waves of memecoins

In recent years, memecoins have been entering the cryptocurrency market at an unprecedented rate filling the digital space with all these new players.

In the economic context, the development of memecoins is tied to wider economic conditions and narratives such as inflation and wealth disparity. As traditional investment tools may seem inaccessible to many people, they became attracted to memecoins. 

Let's look at how these digital assets developed over the years.

The first wave of memecoins

The development of memecoins has kept up with the evolvement of the entire crypto industry. These digital currencies date back to 2013 when two software engineers Billy Markus and Jackson Palmer created Dogecoin as a joke. The asset was based on a popular meme within the Internet culture featuring a Shiba Inu dog.  

Even though the main intention of the founders was to introduce a bit of fun and joke about the hype surrounding emerging cryptocurrencies, Dogecoin became very popular and its price went up approximately 300% in value in just 72 hours. This event represents the first wave of memecoins.

The second wave of memecoins

In 2015 Ethereum came to the crypto scene with smart contracts, the creation of new token standards, and Web3 platforms like UniWrap. Before Ethereum laid down a novel infrastructure, memecoins had to have their chains. This meant that anyone could become a creator within the memecoin space.

To learn more about smart contracts, why not read this article: 'What are Smart Contracts?'.

This marks the second wave of memecoins as the development of smart contracts amounted to the birth of other popular memecoins such as the Pepe coin and Shiba Inu.

The third wave of memecoins

Over the last few years, memecoin creators have moved from Ethereum to other platforms that provide smart contract solutions such as Solana and Avalanche. This expansion signifies the beginning of the third wave of memecoins.  

This move from Ethereum to alternative blockchain platforms amounted to many more memecoins being created and competition between Ethereum and other platforms in terms of technology and community sentiment.

The lottery effect on the crypto market

Why would potential investors be attracted to something that is associated with the possibility of facing substantial losses and which determined its value based on pop culture and viral trends?  

The answer is simple- highly speculative investments can lead to substantial gains. The phenomenon associated with the desire to obtain quick profits is known as the Lottery Effect. The extreme volatility of these digital assets has led many experts to draw comparisons between memecoins and playing the lottery. 

Memecoins have been captivating investors for a while now; in contrast to playing a lottery, where results are based solely on chance, investing in memecoins also includes a certain degree of technical and market knowledge. 

It has been considered within the crypto industry that the high volatility of memecoins and their unpredictable nature can create financial opportunities for those who can read the market signals and spot viral marketing trends. 

On the other hand, a part of the crypto community believes that memecoins tend to be more like Ponzi schemes as they lack time-allocated win or loss windows. Additionally, there have been several anonymous memecoin projects that lacked a bigger purpose and left the majority of investors with losses. 

Rise of celebrity endorsements

In a rapidly evolving cryptocurrency market, one trend emerged- celebrity memecoins. Celebrities became increasingly involved in the crypto world, transforming from simple celebrity endorsements to active participation and investing activities as well as production projects. Such changes have affected market dynamics.

It seems that every time celebrities jump onto the bandwagon there is a broad number of them. Early adopters and the crypto community are divided on the issue of whether such tokens present genuine opportunities for investors or risky ventures driven by their unpredictable nature and social media hype.

Despite the ongoing criticism warning about potential financial losses and perils that are associated with meme coins, celebrity memecoins created a lot of buzz and attracted many users to the crypto world. Let's delve into this matter a bit deeper.

Endorsements to creations

It all started with simple endorsements- celebrities such as DJ Khaled and Floyd Mayweather started promoting certain crypto projects. However, things went south when these celebrities’ promotions caused the price to increase rapidly; it all went down to sharp declines in prices and the projects were accused of being pump-and-dump schemes. 

Celebrity influence and bull runs

It has been presumed that during every bull cycle, many celebrities join the latest trends in the crypto world. For example, during the 2017 bull market, several celebrities endorsed tokens through Initial Coin Offerings (ICOs) such as Paris Hilton, Jamie Fox, and Floyd Mayweather. 

Problems appeared when a big portion of these crypto projects and their ICOs turned out to be scams. Many celebrities got away with fines for promoting fraudulent projects. 

But that didn’t make them stop- in 2021 and 2022 there was a bull run again fueled by the popularity of non-fungible tokens (NFTs) and the Metaverse concept when celebrities recognised a new opportunity to catch up with the new hype. 

The outcome was the same- celebrities promoted fraudulent NFT projects and even the former U.S. president Donald Trump was accused of promoting NFTs with no intrinsic value.

What is going on in 2024?

The 2024 celebrity memecoin frenzy run started with Caitlyn Jenner, the U.S. media personality. Jenner made headlines back in May by launching the JENNER token on the Solana blockchain. The token reached a market cap of $40 million in only 24 hours. 

The U.S. rapper Iggy Azalea followed the trend by launching her MOTHER token also on the Solana blockchain. The MOTHER token’s price went up immediately but the price has fallen soon. 

Another American rapper joined the craze- Rich the Kid launched his Rich (RCH) token and attracted a lot of attention. The token lost 90% of its value in a short amount of time. 

Finally, the Nigerian musician Davido also made headlines with the launch of the DAVIDO token. The project was questioned for its validity as people claimed that it encompassed a pre-mine and token dump. 

Sahil Arora and scam allegations

After these tokens had been launched, their celebrity creators stated on social media that they had been scammed by a person known as Sahil Arora. Arora is an Indian entrepreneur that has been accused of being the mastermind behind celebrity token launches and rug-pull actions.  

Jenner, Azalea and Rich the Kid all said on social media that they were scammed by Arora. Allegedly, Arora launched tokens on behalf of these celebrities even without their knowledge sometimes, and even took over their X profiles with the outcome of dumping his holdings to pull out liquidity and rapidly decrease the token’s price.  

Rich the Kid also claimed that his X account was hacked to promote a token by Arora who allegedly introduced a pump-and-dump scheme. Arora denied all accusations.

The Doja Cat example

American musician Doja Cat has joined several other celebrities claiming that their X account was hacked to promote a Solana-based memecoin. When the account was hacked, there was a post with a message stating to buy the DOJA token. 

Market data and blockchain-related data demonstrated that the DOJA token, set on Raydium, the market maker within the Solana ecosystem, experienced relatively low activity compared to some previous affairs. In other words, there were fewer than 15,000 transactions that generated approximately $2.2 million in volume.

The JASON coin issue

The U.S. singer James Derulo is one of the latest celebrities to claim they have been hacked. Derulo used his X account to announce the launch of the JASON memecoin to his many followers. The coin quickly declined in value by more than 72%. 

The American singer pointed the finger at Sahil Arora, the above-mentioned entrepreneur that was accused of similar wrongdoings. 

At the time of writing, the liquidity of the JASON token is very low standing at about $211,000 with approximately 3,190 token holders. It has been stated that such a pattern resembles high-profile crypto scams. 

The celebrity memecoins' frenzy run and market dynamics

Crypto-related activities by celebrities such as endorsements or investments, have driven a bunch of new investors to the market. When a celebrity endorses a particular token or launches a new one, it usually triggers broader price movements and amounts to an increased trading volume. 

The main problem associated with celebrity endorsements and launches of memecoins are certain unethical conducts and scam accusations. As we have described in the text already, many celebrity memecoins have faced allegations of scamming users. This practice harms the entire crypto market and affects the trust of investors and ordinary users. 

The main idea of celebrities teaming up with crypto projects and developers was to take advantage of massive social media following to promote new tokens. After all, memecoins’ value is based on fan engagement. 

However, tokens that lack intrinsic value are linked to speculative trading and frequently pose risks to investors. Concerns regarding potential fraud and market manipulation of memecoins have often been highlighted by both industry experts and regulatory agencies. 

Are there any potential legal pitfalls?

During bull runs, celebrities, even those with good intentions, can feel the rush and drop memecoins with promises they can’t deliver. The consequences are that crypto newcomers and potential investors become victims of rapidly launched memecoins and suffer financial losses. 

While memecoins are not bad themselves, they can be used as a vehicle to enable fraud and market manipulation. And this is where legal regulations jump right in. 

During peak market times, founders of crypto projects and celebrities can become blind to the legal risks associated with dropping new memecoins. Sometimes they forget that they can be sued or even criminally prosecuted for false promises linked to memecoin offerings. 

Fraudulent claims related to the token in question can amount to civil or criminal liability. For example, celebrities that launch or promote memecoins can face civil liability if their actions can be perceived as market manipulation. On the other hand, if their conduct can be related to false or misleading claims, they can even face criminal proceedings. 

Additionally, promoters of newly launched memecoins can be also liable under relevant securities laws which typically lay down strict regulations to safeguard investors.  

During criminal proceedings, prosecutors tend to check the main characteristics of a particular memecoin as well as the main intention behind the launch; additionally, it is examined how the token was promoted, representations about the future and whether there were promises of broad returns. 

While it is true that memecoins are still a new territory for regulators, potential perpetrators could be held liable under existing civil and criminal legislation. 

If you want to actively engage in the crypto market, it is important to learn about the crypto space and keep track of updates. To learn more about different aspects of the crypto world, we suggest checking out available courses at our Learn Crypto Academy. We work with Engest Technology to provide crypto trading knowledge and technical expertise in the Learn Crypto Trading course.