Psychology of Meme Coins Explained: Humor, FOMO, and More

From funny photos of dogs to celebrities and cartoons, memes have become an integral part of Internet culture. And just like anything else which predominantly lives on the Internet, cryptocurrencies were also prone to succumb to the trends.

The rise of meme coins has been a surprising twist for many long-term crypto investors, with many expecting the trend to die down along with the memes that the coins were inspired by. However, a decade after the first-ever true meme coin – dogecoin (DOGE) – was created, this category of cryptocurrencies continues to flourish.

This article dives into the psychology behind investing in meme coins and why people love them so much.

The Rise of Meme Coins

The number one reason why meme coins have gained popularity is due to their humorous streak related to a certain internet meme. The first-ever meme coin, DOGE, was created in 2013 as a parody of the cryptocurrency phenomenon and ironically took off.

i originally designed dogecoin to blow its load in a few months in 2013 because i thought that was the maximum length of time anyone would care about a meme

a bug that became a feature + merge mining with litecoin prevented it from dying as a coin

the meme, tho, seems eternal

— Shibetoshi Nakamoto (@BillyM2k) May 8, 2023

Since then, they have been popping up left and right, with some of the biggest being DOGE, pepe?(PEPE), a coin inspired by the Pepe the Frog meme, and shiba inu (SHIB), another meme coin inspired by the popular Shiba Inu dog meme.

Meme coins are designed to go viral and are often heavily promoted on social media platforms, creating hype around a new project. Author of NFT: From Zero to Hero, Anndy Lian, explained that the best meme tokens often gain momentum when members of the community buy into the newest token created “in order to be in on the joke.”

“Once it gets popular and spikes in value, retail investors sometimes jump on board and further boost the coin. Additionally, meme coins are mainly community-driven and can gain popularity overnight due to online community endorsements and FOMO [fear of missing out].”

Psychologists agree, saying that one of the biggest reasons as to why people tend to invest in meme coins seems to be FOMO.

“Memecoins frequently create a sense of urgency and excitement, causing apprehension about missing out on possible profits. People may be compelled to invest because they are afraid of being left out,” Dr. Ketan Parmar, a psychiatrist and mental health expert, told Techopedia.

A licensed counselor and therapist, Marissa Moore, added that the popularity of meme coins can also be linked to social proof, or people being influenced by the actions of others, their association with a sense of fun or excitement, as well as the sense of community which fosters a supportive environment for many investors.

Meme Coins and Internet Culture

David Kemmerer, the CEO and co-founder of CoinLedger, said that one of the key driving points in the success or failure of a meme coin is internet culture. He added that because memes are community-driven and are heavily dependent on market sentiment, they continue to drive the hype surrounding meme tokens as well.

Lian added that online platforms in the likes of Discord, Reddit, Twitter, and TikTok serve as catalysts for their viral marketing campaigns and allow meme coins to connect with a diverse range of users. In addition, humor and meme culture, two great catalysts in the success of the said cryptocurrencies, can also have a number of effects on investor behavior.

Dr. Parmar noted that humor can foster innovation and novelty in the crypto space while also reducing the risk and seriousness of investing in an asset as volatile and speculative as meme cryptocurrencies.

Moore added that viral marketing and emotional connection associated with meme cryptocurrencies can also influence investor behavior.

Emotional Investing and Meme Coins

Although, with assets that are as dependent on emotions as meme cryptocurrencies, emotional investing could be a key influence in meme cryptocurrency culture.

Emotional investing is the process of making financial decisions based on one’s emotions rather than rational analysis. Dr. Parmar explained that emotional investing could include heightened risk-taking, it could affect decision-making as well as amplify or dampen an investor’s confidence and motivation.

Moore noted:

“Emotions can cloud judgment and lead to impulsive decisions, such as buying or selling meme coins without considering the underlying fundamentals or risks. [It] can lead to significant gains but also exposes investors to greater losses when sentiment shifts.”

Bandwagon and Herd Mentality

Investors who tend to invest in more “traditional” cryptocurrencies, like bitcoin (BTC), are doing so to make a profit, however, when a person chooses to invest in a meme token, they could be mostly motivated by jumping on to the “bandwagon” and hype surrounding a certain asset. This makes meme coin investors higher risk-takers, while traditional crypto investors are a little more risk-averse, Kemmerer explained.

Dr. Parmar said:

“People may invest in meme coins because they see others doing so, or because they want to fit in or avoid being left behind… Such cognitive biases can affect how people perceive and evaluate meme coins and influence their investment behavior.”

Moore added that when investors see others profiting from meme cryptocurrencies, they may feel compelled to join “the herd, leading to increased demand and potentially inflating prices.”

The Bottom Line

Kemmerer explained that most meme coin investors tend to be very cautious when it comes to investing in cryptocurrencies. This is due to the tokens being more of an entertainment and depending on the narrative and the community standing behind them.

Lian added: “Meme coins are heavily community-driven tokens. Since they do not have any fundamental economic or business use case, their prices are usually influenced by social media and online sentiment. This often brings a lot of hype, but also FOMO and financial risk.”

“Memes are a language in themselves, with a capacity to transcend cultures and construct collective identities between people. These sharable visual jokes can also be powerful tools for self-expression, connection, social influence and even political subversion. Due to the hype around meme culture, many investors are turning to digital assets in hopes of striking it rich.”

While the psychology behind why so many people chose to invest in meme cryptocurrencies is fascinating, investors should remember that these assets are highly volatile and never invest money, they can not afford to lose.