Better Security, Investor Education Critical In 'Burgeoning Yet Chaotic' Memecoins Sector: Expert

Memecoins stepped up their game in the first half of 2024, becoming the most profitable cryptocurrency subsector, and are continuously gaining traction in the broader blockchain industry. While the memecoin market does have its own unique flair, there are also serious security concerns that block further growth and wider adoption.

Memecoins lead H1 2024 crypto projects gains

A recent report by blockchain tools platform Biteye that cited CoinGecko data revealed how memecoins recorded a staggering 1,834.22% in gains during H1 2024. Other crypto subsectors such as tokenized real-world assets (RWAs) didn't even come close to the said figures, logging only 213.49% in returns.

AI-integrated blockchain projects only saw 71.56% gains. "There is no doubt that memecoins are the most profitable track so far in 2024, with the highest average return of 2,405.1%," Biteye's report noted, as per a Google translation.

The top token that gained the most throughout the period was $BRETT, lodging a stellar 14,353.54% surge in the first half of 2024, followed by dogwifhat ($WIF), which saw a 933.93% spike.

Memecoin market red flags

Max Jones, the founder of MemePad, a token Launchpad on the Solana blockchain, told International Business Times that while memecoins have surely displayed promising growth, there are issues that need to be addressed.

Jones said MemePad's recent research found that over 91% of all meme tokens launched are either rug pulls – in the context of crypto, these are exit scams wherein developers raise funds by selling a new memecoin only to vanish after they've collected the investments – scams, or have serious vulnerability issues.

Commenting on the recent data regarding the rise of the memecoin sector, Jones said it is a significant transition. "The remarkable surge in memecoins, which have led among all crypto projects in the first half of 2024 with gains surpassing 1,800%, underscores a significant shift in the market dynamics. Investors are increasingly gravitating towards speculative, trend-driven opportunities, moving away from traditional value investing principles. However, this explosive growth comes with a dark side," he pointed out.

He went on to note that recently launched tokens such as $BEER and $WATER only demonstrate the "controversies" that plague the fast-evolving subsector. The $BEER token has been tagged as a scam by crypto users and some blockchain researchers.

A crypto sleuth account on X (formerly Twitter), @CryptoRugMunch, said late in May that the project was "looking more and more like an insider scam job."

Other memecoin users have also warned against $WATER, with one saying the developer team behind the token used the "same playbook as $BEER."

How to determine the legitimacy of a memecoin

"The alarming statistics highlight the urgent need for security measures and comprehensive investor education within this burgeoning yet chaotic market," Jones said.

He went on to note that investors should have a clear understanding of which memecoin projects are genuine and which are most likely to end up being scams. First, real projects are focused on "creating lasting value, not just riding the waves of hype," Jones said.

An example would be Dogecoin ($DOGE), which remains the world's largest memecoin by market value. Other tokens that have established themselves so far as not just a fleeting part of the memecoin market are Shiba Inu ($SHIB), Pepe ($PEPE), $FLOKI, and several more on CoinGecko's ranked top tokens by market cap.

Jones further pointed out that a legitimate memecoin project should be "committed to building a sustainable ecosystem" and "fostering a robust community." He concluded the token legitimacy check by saying genuine projects should provide investors with a "clear, achievable path to growth."

For Jones, prioritizing the said fundamentals will be critical in helping all stakeholders distinguish "true innovation from mere speculation."

The memecoin market moving forward

Analysts at global broker FBS noted in a CoinGecko report that the strength of a community and the ecosystem behind a memecoin play a key role in determining the longevity of a token. Changing regulatory landscapes can pose potential challenges to the sector, but memecoins are expected to retain their popularity among high-risk investors.

They underscored the need for investors to remain cautious when investing in the market, and urged thorough research. He said investors should also educate themselves about market trends and potential regulatory changes so they can maximize opportunities in projects that illustrate growth and prioritize transparency.