5 Things Investors Need to Know Before Investing in Memecoins

Memecoins have quickly become the center of attention in the cryptocurrency world. Initially just jokes or trends online, they unexpectedly attracted significant interest and massive investment flows. While some lucky individuals have made substantial profits in a short time, many investors have suffered heavy losses. Therefore, understanding the risks associated with memecoins before participating is crucial. Here are five key risks you need to consider.

1. High Price Volatility and Lack of Intrinsic Value

Memecoins are notorious for their unpredictable price volatility. Prices can skyrocket or plummet in an instant without clear reasons. Unlike reputable cryptocurrencies like Bitcoin or Ethereum, most memecoins lack a solid technological foundation or sustainable business model.

For example, the total market value of memecoins plummeted from a peak of $137 billion in 2024 to $49 billion in 2025, representing a decrease of over 60%. Coins like Dogecoin and Shiba Inu experienced rapid price surges but quickly lost value as community interest waned. Their value is often driven more by social media trends than by intrinsic worth.

2. Risk of Scams and Fake Projects

The memecoin market is a fertile ground for scams, with numerous projects created solely to deceive investors. The two most common forms are “pump and dump” and “rug pull.”

In a “pump and dump” scenario, a group inflates the value of a memecoin to attract investors, then sells off at the peak price, causing the value to crash.

Meanwhile, a “rug pull” occurs when founders suddenly withdraw all funds and disappear, leaving investors with worthless coins.

For instance, a memecoin linked to a political figure experienced a severe price drop, causing significant losses for participants. These coins carry high risks as they primarily rely on hype rather than a clear development plan.

3. Lack of Regulation and Protection

Most memecoins are not subject to oversight by any government or financial authority, leading to a lack of investor protections. If one falls into a scam, seeking assistance or recovering funds is nearly impossible.

Some authorities argue that memecoins are not considered financial securities, thus not covered by standard protections. Moreover, many memecoin founders remain anonymous or do not disclose information, making it extremely difficult to determine the true purpose of the project. In this environment of absence of regulations and protections, investors can easily find themselves vulnerable when risks arise.

4. Influence of Celebrities and Social Media

The popularity of many memecoins often stems from endorsements by celebrities or influencers on social media. With massive followings, their promotions can cause coin prices to skyrocket. However, this attention is often not sustainable.

Sometimes, public figures entice investors through contests or attractive rewards, such as the chance to have dinner with a celebrity, creating a sense of exclusivity and excitement. Nevertheless, the actual value of the coin can still be fragile and unstable. Relying on celebrity hype rather than conducting thorough research can lead to poor investment decisions.

5. Centralized Control

Another potential risk is when a small group of individuals or organizations holds a majority of the memecoin supply, making it easy for them to manipulate prices. If this group suddenly sells a large amount, the coin’s value can collapse instantly.

For example, there have been cases where around 80% of a memecoin was controlled by individuals related to public promoters. This concentration of ownership allows those involved to profit, while ordinary investors bear the losses. When a coin is dominated by a small group, the risk of market manipulation becomes more pronounced.

Related: Justin Sun to Attend Dinner with Trump and Memecoin Investors

Conclusion

Memecoins can be appealing and exciting, but they conceal serious risks. Extreme price volatility, the risk of scams, lack of regulation, celebrity hype, and centralized control make them a highly speculative investment option. Many dive into memecoins hoping for quick riches, but in reality, losses often far exceed profits.

Before investing in memecoins, carefully consider and conduct thorough research while being fully aware of the potential risks. Caution and knowledge will help you avoid regrettable mistakes and financial losses in this volatile cryptocurrency world.