My first Covid-19 vaccine shot came with a dose of cryptocurrency advice. The guy administering my jab in the back room of a small clinic on Coney Island told me he was buying dogecoin, the canine-inspired meme coin whose price swings wildly in part because of Elon Musk’s tweets. He suggested I buy some, too.
We are in the age of investing by meme. Some people are tossing tons of money into a stock or a coin not because they believe there’s something significantly different about the underlying value of the asset but because it got popular on the internet, and they think it’s funny, cool, or just something to do. They buy into the hype generated on platforms like Reddit and TikTok and join in. Crypto is the epitome of all of this — as well as all the disarray and confusion that entails.
“Some things are clearly legitimate and some things are clearly bullshit, and there’s also this long tail of things that are a little bit confusing,” said Sam Bankman-Fried, the head of Alameda Research and the FTX cryptocurrency derivatives exchange. “In this financial environment, sometimes just a token with a meme or a stock with a meme or an asset with a meme is enough to get a $20 billion valuation.”
Bankman-Fried is a crypto billionaire. For those hoping to strike digital gold with their crypto investments, it’s important to note that his crypto success is very much the exception, not the rule.
You might be familiar with the GameStop saga earlier this year, when an army of traders on r/WallStreetBets helped drive a spectacular rise in the retailer’s stock price seemingly out of nowhere. They managed to rankle some big names on Wall Street. There are some investors who will say they were into the GameStop trade because they believe in the value of the fledgling company, but a lot of them were there for GameStop as a meme. And a powerful one at that.
But crypto has been operating like this practically from the beginning. The meme aspect of it has always been part of the appeal. Bitcoin or dogecoin or ethereum are as much a cultural and internet phenomenon as they are a technological or financial one. And as crypto goes more mainstream, so do the memes, especially as people are getting into day trading without much of an investment plan.
Though cryptocurrencies have been around for more than a decade, they are capturing more headlines recently. (Recode’s Rebecca Heilweil has an explainer.) The price of bitcoin, the original cryptocurrency, has gone from $5,000 to $6,000 a year ago to surpassing $60,000 for some time this spring. Both institutional and ordinary investors have been along for the ride. But crypto is also incredibly volatile, as evidenced in the wild fluctuations seen this May. A sudden selloff on May 19 sent the price of bitcoin down 30 percent, and hundreds of thousands of traders were completely liquidated. Some other “altcoins” (meaning anything that’s not bitcoin) tanked, too.
Some crypto traders say they have “laser eyes,” meaning they’re not straying from the bitcoin course. But for many new investors, it’s been a crash course in crypto chaos. The meme meets reality.
“People who aren’t plugged into this 24/7 should definitely be more careful than a lot of people advocate for being,” said Sam Trabucco, a cryptocurrency trader at Alameda Research, a quantitative trading firm.
In the current frenzy, some of what’s happening seems a little ridiculous and even nefarious. Ethan Allen’s stock price has surged because people are confusing its stock ticker, ETH, with ethereum. Dave Portnoy, the founder of Barstool Sports, has said he’s investing in a coin that might be a Ponzi scheme. And according to a report from the FTC, consumers have lost over $80 million to crypto scams over the last six months alone, including $2 million just to Musk impersonators. Many politicians and regulators are calling for tighter rules around the space.
“Yes, there’s opportunity,” said Ed Moya, senior market analyst at OANDA, “but I feel like the risk is greater than anything we’ve seen on Wall Street.”
Bitcoin has gone through boom-and-bust cycles before, and pump-and-dump schemes in smaller coins right now are everywhere. In a meme economy, you might feel like you’re in on the crypto joke, but the joke might still be on you. And memes go in and out of style.
For one, though GameStop’s stock hasn’t fallen to its pre-memeification value, it’s still trading well below its mid-frenzy highs. Musk may find bitcoin and dogecoin interesting and funny right now, but he probably won’t forever. (He’s already changed his mind more than once.) Many regular people got into trading during the pandemic, including crypto trades, because they’re bored at home. Now that life is getting back to normal, scanning random subreddits to rally behind a funny new coin or image might fall farther down on the list of priorities.
When I went back for my second Covid-19 shot, I decided not to ask the vaccine guy about his dogecoin investment. I remembered he was trying to amass 1,000 dogecoins before it hit $1, and I knew he probably still had plenty of time to get there.
We’ve entered a meme era of investing
Plenty of people are trading crypto for substantive reasons. But much of the crypto frenzy recently appears driven by … not that. Your friend from high school isn’t trying to buy a Shiba Inu coin because they believe it’s the technology of the future.
“In bitcoin’s case, its technology is a really important part of the meme. Dogecoin, it’s, ‘Let’s extract all of that and just focus on the meme,’” said Galen Moore, director of data and indexes at CoinDesk. “I guess the question you have to ask yourself is how long do you think that meme can last?”
Some dedicated traders say they intend to “hodl” or have “diamond hands,” meaning they’re not letting go no matter what happens. When the going gets rough, there is a core group determined to meme through it. The joke is still funny, even if the financial situation is not.
Not coincidentally, there has been a proliferation of “shit coins” and meme coins (two terms that are sometimes synonymous with altcoins), which often skyrocket and crash quickly. “It’s really easy for somebody on TikTok or whatever to just copy or launch a token with a funny name, and then you get into meme trading,” said Neeraj Agrawal, head of communications at Coin Center, a crypto policy think tank.
Pump-and-dump schemes — where a group of people pump up a cryptocurrency’s price to create a buying frenzy, get the price up, and then sell — are common. They’re a way to try to weaponize the meme. Even if you go into a pump-and-dump scheme eyes wide open, you might not realize you’re actually the dumpee.
“If you buy something called asscoin, that’s on you,” said Agrawal. ($ASS coin, or rather, Australian Safe Shepherd coin, is a real thing. It is also a joke.)
The irrational exuberance now is reminiscent of 2017. Back then, there was a proliferation of initial coin offerings (ICOs), with startups offering digital tokens to raise money. They generated a lot of hype, and some even came with celebrity endorsements. A lot of them turned out to be scams.
“We’re starting to see the kind of stupidity that we saw,” Agrawal added. “As far as what that means, who knows.”
Pumped up by the “relentless get-rich-quick mentality”
A combination of things has contributed to crypto’s latest takeoff. Some big institutional names started to get behind bitcoin. They include billionaire hedge funder Paul Tudor Jones, who said he sees it as an inflation hedge and a “great speculation,” and Bank of New York Mellon, the country’s oldest bank, which has announced it will offer bitcoin services. Musk’s interest contributed to the excitement.
Cryptocurrency trading platform Coinbase also went public in the spring, solidifying a spot in more traditional finance. Cash App and PayPal and Venmo have begun accepting some cryptocurrencies; Tesla said it would accept bitcoin but then changed course. But generally, more people have gotten into crypto in recent months and years because it was easier to do so.
“The received wisdom is that the fourth quarter was driven by institutions and the first quarter was driven by retail,” said Moore, from CoinDesk, said. The enthusiasm around crypto — some of it financial, some of it meme-inspired — bred more enthusiasm. Bitcoin is the best-performing asset of the last decade, and it’s hard for both pros and novices not to look at that and think, why not try to get in?
“A lot of what has pumped up this market has been this relentless get-rich-quick mentality,” Moya said. “There have been several altcoins where … you’ll see that this coin is up 30 percent on some random day, and people were just blindly buying these coins.”
There are thousands of different cryptocurrencies out there, and creating a new one is really easy to do. Some of the options out there are rather serious projects — although there are plenty of smart people who would tell you absolutely nothing about this is serious — others are a joke. Even what the price of a cryptocurrency is at any given time can be debatable.
“In crypto, there’s 20 important exchanges and there are no laws that regulate that the prices have to be similar on the exchanges, so what the price of bitcoin is is more unclear than it is in traditional finance,” Trabucco said.
In the relatively short life of crypto, there have been multiple rounds of booms and busts, most notably in 2013 and in 2017. The last time this happened about four years ago, bitcoin’s price hit nearly $20,000 before crashing back down to $3,000. Last week’s decline sparked speculation that this is the beginning of the end of the latest crypto boom cycle. There is more institutional buy-in this time around, which some people in the space say they believe means this time will be different. Of course, institutions can always walk away, and many investors are easily spooked.
“Volatility is actually a feature, not a bug. It’s part of how this system works,” said Raoul Pal, a former executive at Goldman Sachs and now the CEO of Real Vision Group, a financial media company.
There’s also a learning curve to getting into crypto, not only when it comes to understanding the volatility but also when it comes to avoiding being swindled or losing their coins. The amount of money people have lost in crypto scams is up 1,000 percent over the last six months compared to the same period last year. When crypto is misplaced, it’s often difficult, if not impossible, to trace (which is why it had sometimes been a method of choice for crime and money laundering). There have been multiple high-profile hacks, and sometimes, people just lose their crypto because they forget a password or lose their keys. An estimated $140 billion of bitcoin is just lost.
There are still lots of regulatory questions
The entire meme-driven retail trading trend has ignited calls from politicians and regulators for tighter rules. The same goes for crypto. But no single agency is even the clear regulator of cryptocurrency. The Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC), and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) all have a hand in some aspect of it. Crypto is generally considered a commodity, like oil or gold, and not as a security, like a stock, or a currency, like the dollar. That contributes to the confusion about who’s in charge of it.
The IRS has to deal with the tax component, too. The IRS recently put out a plan that would include requiring crypto transactions of over $10,000 to be reported, as is the case with cash. This new policy stands to undercut some of the appeal of crypto, where transactions often fly under the radar.
The lack of regulation, in many ways, makes the meme element more potent. If it feels like there are no rules, why not create an $ASS coin, hype it up, and then trick people out of thousands of dollars?
SEC Chair Gary Gensler has said he would like to see a tighter regulatory framework around crypto. “This is a quite volatile, one might say highly volatile, asset class, and the investing public would benefit from more investor protection on the crypto exchanges,” he said at a recent conference. But it’s something that would have to be dealt with through Congress. There are some pieces of proposed federal legislation related to crypto out there, but it’s unclear what their prospects are: Lawmakers tend not to be great at figuring out technology.
It’s not necessarily the case, however, that there are absolutely no rules around crypto. A crime is still a crime, and money laundering is illegal regardless of the currency. In 2019, researcher Chainalysis traced $2.8 billion of bitcoin that went from criminal activities to crypto exchanges. But a lot of the rules around the space right now aren’t crypto-specific.
“There are robust regulatory regimes in place for US-regulated service providers in the crypto space,” said Greg Thalis, a partner at Chapman and Cutler LLP focused on emerging technologies. “The issue is it’s regulation that, for the most part, is being repurposed to apply to a technology where some of those regulations don’t fit entirely perfectly.”
It’s not just what the US does that matters; it’s other countries, too. After all, the point of projects such as bitcoin is to be global. Some other countries have more lax rules than the US, but as we’ve seen recently, international regulatory threats can also cause price changes.
China recently moved to clamp down on crypto transactions and shut down crypto mining operations there, which ignited the May 19 drop in crypto prices. Hong Kong has proposed requiring exchanges there to be licensed by its markets regulator and limiting crypto trading to professionals — a big deal, given that many of the biggest exchanges of the world are located there. Given the environmental impact of crypto mining, some people would like to see it regulated out of existence forever.
Of course, many of the people who have piled into crypto trading in recent months aren’t interested in the regulatory regime surrounding the emerging technology, nor are they dedicated to the project long term. They hopped in on a meme coin and went along for the ride, many of them learning that making a quick buck on something they saw trending on the internet is easier said than done.
“Some people will make a lot of money, more people will lose a lot of money,” Agrawal said, “but hopefully some good will come of all of this.”
At the very least, they’ll have the memes they met along the way.