OP Research: The Meme Coin Craze is the Ultimate Expression of Herd Mentality

OP Research: Meme Coins: The Ultimate Herd Mentality

Overview

It is not difficult to see that the success of Meme Coin’s spread is closely related to the spread of emojis, counterculture, and the “get rich quick” myth that brings a lot of attention. In addition, the role of celebrities such as Musk in the Meme Coin market cannot be ignored, and his words and deeds have a very important impact on the market value of related projects. Looking back at the Meme market, it can be said that the Meme craze is the ultimate expression of herd behavior, and investors’ investment behavior in this situation often belongs to follow-up purchases, thereby pushing up asset prices. More speculators are brainwashed by the “get rich quick” myth to enter, further pushing up asset prices, thereby making Meme assets bubble. Except for the moment when the bubble burst, every participant was happy.

If you need to give Meme Coin a definition, then from our research perspective, it may be:

1. Project tokens without value capture/landable products.

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2. Has a huge community consensus.

3. Has a strong cultural identity.

Meme Coin is usually a project token that lacks value capture or landable products, but it has a huge community consensus and strong cultural identity. The combination of these characteristics has enabled Meme Coin to gain widespread participation in the market, while having a profound impact on the cryptocurrency community and ecosystem.

They are different from traditional blockchain project tokens, whose value is mainly based on market demand, investor psychology, and community consensus. Although they cannot provide substantial economic or technological applications, the unique properties of Meme Coin attract a large number of investors and community participants. Community members form a consensus system based on common interests, viewpoints, and beliefs. This consensus is based on social media, online forums, and other community communication channels, providing strong impetus for Meme Coin. The participation and support of community members is crucial for the circulation and value development of Meme Coin. They are usually closely related to specific network cultures, Internet memes, or popular cultural elements. This cultural identity makes Meme Coin an asset with emotional resonance and entertainment properties. By combining with user emotional and cultural resonance, Meme Coin has formed a unique attention in the market.

BTC is the largest Meme Coin

This leads us to say: BTC is the largest Meme Coin.

BTC does not deflate, only halves its output, has no practical use, and is traded as a currency in itself. However, from its birth in 2008 to the present day, BTC has seen a huge increase in value, established a huge consensus, and has a large number of holders. BTC maximalism has become the constantly challenged BTC culture, and the Crypto Native derived from it has gradually become the pursuit of the Crypto industry.

Although BTC shares some similarities with some Meme Coins, such as a lack of actual value capture and an emphasis on community consensus and cultural identity, BTC’s history, market position, and social acceptance make it a unique digital asset. Its value and influence far exceed that of ordinary Meme Coins and play an important role in the entire cryptocurrency field.

Meme Coin brings cryptocurrency to a wider popular culture in a light-hearted and playful way and is a digital asset with entertainment and humor elements.

The origin of Meme Coins is closely related to spoofing and entertainment elements in popular culture. Take DOGE, SHIB, PEPE, and AI DOGE as examples. The rise of these projects shows the carnival of retail investors and the expression of the collective spirit. These projects attract users’ attention and participation through emoticons and cultural symbols, becoming popular projects in the Meme Coin market.

The success of these projects is partly due to their use of popular emoticons and cultural appeals as carriers of communication, quickly attracting investors’ attention, and even many investors outside the circle. These emoticons and cultural symbols have been viral on social media, causing these projects to rapidly rise in the Meme Coin market.

By using spoofing and entertainment elements, these projects have successfully shaped an interesting and eye-catching identity, attracting a large number of investors and participants. Their creativity and uniqueness inject new vitality into the Meme Coin market and demonstrate the huge influence of collective spirit in Crypto.

Rebellion against existing strong consensus will also be recognized and followed in the Crypto industry because BTC itself is a rebellion against the real currency system. This may come from the patricidal complex rooted in the hearts of Westerners, or the Oedipus complex. So, Meme Coin can be said to be born in counterculture, rebellion against the mainstream, rebellion against the rebellion of the mainstream…

Just as DOGE was born out of a rebellious culture against BTC, Billy Markus and Jackson Blockinglmer created Dogecoin as a fun alternative to the seriousness of other cryptocurrencies. The currency was created using a photo of a Japanese Shiba Inu dog and the technology from Litecoin, and was related to BTC with an unlimited supply and low unit price. It quickly gained widespread use, even being used as a currency for tipping on websites like Reddit.

SHIB, on the other hand, is a rebellion against DOGE. “Ryoshi” created Shiba Inu with the explicit goal of being a “dog killer,” using DOGE’s Srypt mining algorithm to build a new dog coin on Ethereum. Unlike DOGE, which aims to be a payment currency, SHIB aims to build its own ecosystem and release a series of products, such as Shibaswap, SHIBOSHIS NFTs, SHIBA Eternity Game, SHIBA Metaverse, and Shibarium Layer 2.

PEPE is a rebellion against the entire Meme Coin culture, including the dog and Inu IP. According to the official PEPE website, “the most memeable memecoin in existence. The dogs have had their day, it’s time for Pepe to take reign.” The project aims to overthrow all Inus and dogs, with no presale, burn tax, proprietary LP tokens, or contract control. The goal is to become the king of memes and subvert the current Meme culture. PEPE is able to do this because the PEPE meme has a deep history and consensus. As early as the BTC era, the PEPE meme was circulating on 4chan forums and recorded on the BTC ledger. “Rare Pepe” was launched as an NFT on the BTC network’s Counterparty trading platform in September 2016.

However, for a Meme Coin to truly become a Meme Coin, it needs enough sustained attention. Thousands of Meme Coin contracts are deployed every day, but only those that are noticed can be considered Meme Coins, otherwise they are just ordinary coins.

Not just Meme Coins, but the entire market is currently dominated by attention economy.

When we look at the rise of past Meme Coins, we can see that these projects gained attention through user airdrops and memes that expressed unique cultures.

1. Most projects gained initial attention through airdrops and memes. For example, users were airdropped popular projects for initial attention (AI DOGE), or attention was gained through the use of popular memes (PEPE).

2. After having a certain number of early users, these projects used popular emoji and cultural IP as their carriers to spread virally on social media, quickly catching the attention of investors, including many outside the circle, causing these Meme Coins to quickly rise. Being mentioned by Musk and other KOLs is the best way to spread and attract attention.

3. Meme Coins are mostly launched through Fairlaunch pool to complete the initial issuance. Therefore, they can be caused to rise sharply by a small amount of capital, and use community dissemination to attract attention. Each doubling and dissipation will further attract the attention of more users, causing Fomo emotions.

4. The continuous and persistent screen brushing, coupled with early buying and long-term holding to obtain a large amount of wealth, has broken the myth of becoming rich overnight, and has brought users’ emotions to the extreme.

5. The entire development path uses Listing on different level exchanges as a project volume milestone to attract incremental user attention at different volumes, so being listed on Binance is often the short-term top of a Meme Coin, that is, entering a stock attention game. Whether the coin price can remain stable depends on the degree of cultural acceptance and consensus strength of the project.

Emoticon culture, as a product of traffic, spreads rapidly in the Internet era and arouses resonance among users. Emoticons, as a tool for transmitting information and group emotions, provide the basis for the spread of Meme Coins. Through existing emoticon IPs, Meme Coins can spread rapidly on social media platforms, forming a viral market effect.

Emoticons are a set of symbols that express emotions, expressions or meanings in the form of images or icons. They are usually used on social media, chat apps, online forums and other platforms. Emoticons use cute, funny or exaggerated images to convey emotions and intentions in a concise and intuitive way, enhancing people’s expression ability in online communication.

Emoticon culture has spread rapidly in the Internet era, becoming a unique network language and popular culture phenomenon. Emoticons are not only tools for expressing emotions, but also have social and cultural significance. Emoticon culture is a traffic product that accompanies the development of the Internet. As a carrier of information and emotions, it can quickly spread and arouse strong resonance among users. If WeChat’s red envelope function is the driving force behind WeChat’s traffic iteration, then emoticons are the carrier of viral transmission among all Internet users. Existing emoticon IPs provide Meme Coins with a certain basis for dissemination, followed by viral dissemination that allows Meme Coins to rise with the wind.

(PEPE)

Musk: Biggest Market Maker for Meme Coins

As an important figure in the Meme Coin market, Musk has had a significant impact on the market value of relevant projects through his remarks and actions. For example, his calls for DOGE, SHIB, and FLOKI have sparked investor interest and buying behavior. In addition, some projects are directly related to Musk, attracting investor attention by using his name or image.

According to CoinGecko’s list of the top ten Meme Coins by market value, at least seven of the projects are nominally related to Musk’s hype and breakout, and the top ten Meme Coins account for more than 88% of the total Meme Coin market value. During the 2021 Meme craze, he called for $DOGE, $SHIB, and $FLOKI on Twitter, and $LADYS also saw an influx of funds due to Musk’s retweet of the Milady avatar. As for $ELON, although the official website does not acknowledge its relationship with Musk, its token name is Elon Mask. The popular projects $PEPE and $AI DOGE in the 23-year Meme craze claimed to convince investors to abandon Meme Coins like $DOGE, which can be understood as a technical counter-trend, while the latter obviously took advantage of the hype surrounding $DOGE.

(From CoinGecko)

However, Musk’s marginal benefits from calling for Meme Coins seem to be diminishing. According to research data released by Chain Catcher, Musk’s “market-making on his mouth” has gradually reduced the marginal benefits of Doge’s price increase.

(From Chain Catcher)

The Meme Coin craze is the ultimate expression of herd effect.

As a controversial industry since its inception, the crypto industry’s practitioners all crave recognition. As a complex financial product, cryptocurrency has attracted a large number of investors without sufficient financial knowledge due to its lack of barriers to entry, but the lack of standards has made these users victims of zero-sum games. Therefore, people usually gather in groups/DAOs, and are prone to blindly follow self-investors with strong subjective judgments. Therefore, this industry naturally tends to group and follow opinion leaders or celebrities.

In this case, most projects will try to find a Big Name to cooperate with during promotion to demonstrate the quality of their products and gain acceptance from the larger community. As a project without fundamentals, Meme Coin relies more on the mobilization of user emotions, so it needs to establish a strong community and gain recognition from major influencers. The premise for a Meme Coin to sustain long-term growth is to build a consensus within the community and spread its own culture to gain recognition.

In other words, the Meme craze largely represents the ultimate expression of herd behavior. The enthusiasm and follow-up buying behavior of investors have driven up the asset prices of Meme Coins, rather than fundamental analysis. This phenomenon usually leads to the formation of a price bubble, causing asset prices to be far higher than their intrinsic value. The synthetic consciousness and inner fear of missing out on the trend of investors further push up asset prices.

In the realm of behavioral economics, the herd effect refers to the influence of other people’s behavior on individuals when making decisions, which leads to the individual imitating or following the behavior of others rather than making independent decisions based on their own information and judgment.

Translated into investment terms, investors’ enthusiasm drives up asset prices, rather than their fundamental analysis, which usually leads to a price bubble. The asset prices continue to rise, and the gradually increasing community discussions stimulate more investment purchases, thereby further pushing up asset prices.

To a large extent, the psychology of investors who follow the trend is “if I don’t buy now, it will be too late.” In this way, the collective synthetic consciousness of investors constitutes the basis for the positive feedback of asset price increases.

In the recent Meme trend, according to data from Lookonchain, the myth of some “smart money” getting rich quickly became a stimulating factor for other investors to buy. These investors bought in because they feared the investment illusion of “missing out on this trend if I don’t buy now,” thereby further pushing up asset prices.

Therefore, it can be said that the Meme craze is to some extent the ultimate expression of herd behavior and also the practical proof of behavioral economics in Crypto Trading.

DOGE’s explosive power comes from Elon Musk’s promotion: his own influence and powerful financial resources behind him.

PEPE’s explosive power comes from years of accumulation of PEPE emoticons and millions of dollars in market-making funds from the team.

Whether it is finding KOL to bring orders, community cooperation, or going public, it requires funding support, and the rise in currency prices and depth of liquidity both require a large and sustained fund to support it. For example, a simple forwarding promotion to a high-quality project introduction thread requires 100-1,000u per person, and for information coverage to be ensured, such KOLs need to find 10-20 people. For cross-scale community cooperation, at least thousands of u worth of resources need to be provided as exchange. The listing of exchanges also requires payment of tens of thousands or even hundreds of thousands of u, as well as the listing and market-making fees of project tokens. A typical project costs tens of thousands of u, let alone a meme project that emphasizes promotion.

In addition to repeatedly appearing on social media, strengthening cognition for multiple targets and multi-dimensional groups also requires a large and sustained fund to appear in users’ life circles for a long time and establish cultural identity. To root a cognition or establish a cultural identity in someone’s mind, it is necessary to repeatedly enter their life circle from different angles for a long time, just like how CryptoPunks was initially given away for free with no one interested, and was eventually auctioned for as high as 23.7 million US dollars, because it built a Genesis NFT and encrypted OG image in users’ minds. Owning it not only means being a Crypto Native, but also having the same status as heavyweight giants such as Tobi Lutk, the founder of Shopify, and Mark Cuban, the owner of the Dallas Mavericks. And to achieve such cultural identity, it is inevitably related to Jason Abbruzzese’s “This Ethereum-based project may change our perception of digital art” and the continuous traditional art gallery auctions.

So from the perspective of cultural identity and community building , Meme Coin and NFT have a similar approach , and looking back at the establishment of IP in the real world, it seems to be a similar path. For example, the Star Wars universe, the Disney universe, the Marvel universe, and the Harry Potter universe are all building their own cultural identity and community consensus. By using textual stories and visual images to stimulate users, and building a cultural system from multiple angles for a long time, and then expanding peripheral businesses based on a stable user group.

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