Memecoins have become a phenomenon over the last few years. Dogecoin (DOGE), the original memecoin, inspired from an internet meme, has grown into a massive cryptocurrency project. While many are attracted to the massive returns memecoins have historically given, very few are aware of the risks that they come with. Let’s look at what you should know before investing in memecoins.
Memecoin Risks You Should Know Before Investing
Memecoins have a high risk to reward ratio. This means that these assets could give high returns, but come with substantial risks and price volatility. Let’s look at the example of Dogecoin (DOGE), which is probably one of the most popular memecoins in the market. According to CoinGecko data, DOGE climbed to an all-time high of $0.7316 in May of 2021. However, the asset’s price has fallen by more than 85% since its 2021 peak. Other popular memecoins also follow a similar pattern. Shiba Inu (SHIB), another popular memecoin, has fallen by more than 92% since its all-time high of $0.00008616. Therefore, while memecoins have given good returns in bullish markets, their prices tend to crash in bearish environments.
Additionally, memecoins do not have much utility. They are more catered towards online internet culture. Even the SEC and CFTC put out a joint statement saying that memecoins are “digital collectibles.” Moreover, an SEC release from February 2025 stated that “transactions in the types of meme coins described in this statement, do not involve the offer and sale of securities under the federal securities laws.“
Memecoins have also been subject to several scams, such as rug pulls. Developers lure unsuspecting investors to invest in a new type to crypto, only for them to close shop and take off with the investors’ money.
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Therefore, although memecoins may appear attractive for their possibilities of big returns, it is of the utmost importance that investors do proper due diligence before investing their money in them.